Property In A Box
 
1 300 653 795

Buy, Build or Flip, Sell or Hold

House and keys

Buy + Build + Sell or Hold

PROS

This strategy is similar to the“buy and subdivide and sell” strategy and once again not for the fainthearted. On the upside, there is good profit to be made, particularly for those able to be involved in the building process themselves. Adding real value by building or improving a property is one of the most fundamentally sound ways to make profit.

 CONS

As above for subdivision –tax consequences will be adverse and you will have to become involved not only with councils, surveyors and the like but also with builders, tradespeople, suppliers, etc. Delays in any of these areas can lead to lengthy hold periods. It can also erode all the profit from a project. In some cases, if very lengthy delays are experienced, the entire project might not even turn a profit.

Buy and Flip

This can mean different things to different people but what it usually means is to buy ‘off the plan’ and sell before settlement. Some investors use this strategy to buy a few properties and then sell most of them before settlement. They then apply the profits to reduce the debt on the properties they retain. A fantastic strategy for the experienced investor and it works well in an upward-moving market. However, it can be fraught with danger if the market falls during the construction period and you don’t have the spare resources (cash or equity) to cover the shortfall.

house flip renovate

It can be a bit like the stock market ‘margin calls’ that are rapidly bringing the share market to a grinding halt. If you intend to buy and flip, it is important to get professional advice. This is to ensure that you can cope with a possible decline in value. If your financial position is such that you could survive such then the buy and flip strategy can bring some fantastic possibilities. If you proceed down the buy and flip path (after seeking professional advice) – look for developments with the following criteria:

  • – Look for brand new developments.
  • – Developments that have a suitable timeframe to completion.
  • – Projects with Progress Payment Plan that does not require the bulk of the payment until near the end of construction. Only a 10% deposit is required to hold the property until completion and settlement.
  • – Be first in. Often the best gains are to be made early when the developer needs to sell quickly to meet the bank’s “re-sales” requirements. This will assist an investor as the project nears completion. The price may have already risen substantially as the developer is no longer in need of a quick sale.
  • – Work with a professional that can assist you to determine the suitability of potential properties.

 

Previous Article: Buy and Sell or Sub-divide or Hold

Next on the blog: Refresh your Portfolio

 

Buy and Sell or Sub-divide or Hold

Buy + Sub-divide + Sell or Hold

PROS

Fantastic opportunity for those not faint-at-heart. Serious profits can be made by buying land capable of subdivision and doing what the previous owner was unable to do.

CONS

You need a large amount of capital (i.e. cash) behind you as, particularly in the current environment. The banks are simply not willing to lend serious money to even the most experienced property developer.

If you are a novice, your chances of getting finance are seriously slim. It can still be done but you will need to put in a large portion of the funds for the development yourself. There are ways around this, such as: vendor finance, joint venture partners, and obtaining pre-sales. Above all else – seek professional advice. In this instance, the tax man will definitely see you as a property developer rather than an investor. This means you will be subject to income tax and GST as opposed to the far more lenient capital gains regime. You will also need to become involved with local councils and their development approval processes, surveyors, architects, etc. You will need to make this almost a full time job.

divide house subdivision

Buy and Sell

PROS

A simpler version of the buy, renovate and sell example above only that you don’t have to renovate. You simply buy, hold and sell for profit. This can be a great strategy in a fast upwardly moving market.

CONS

Once again, transaction costs make this a very difficult strategy to profit from. You need your property to increase around $40,000 in value before you will even break even. This is on average one year’s capital gain. This strategy also relies on a number of external factors like availability of finance and market fluctuations. This type of strategy is more suited to an experienced investor.

 

Previous Article: Buy, Renovate and Sell or Hold

Next on the blog: Buy, Build or Flip, Sell or Hold

 

Buy, Renovate and Sell or Hold

PROS

The ‘Buy, renovate and sell or hold’ strategy can maximize potential gain by improving areas of the property that are unsightly such as an un-landscaped front yard, a messy entrance way, a run-down bathroom or kitchen. This is a good strategy for those with the time and skills (i.e. tradesmen or women) that can complete the renovation themselves.

It is an exceptionally good strategy for those that have the lifestyle suitable to living in the property for a year or more, whilst they renovate it, and then sell it.

CONS

The main disadvantage of this strategy is the chance of getting it wrong and making a loss. Transaction costs are another major disadvantage of this strategy.  In a market moving quickly upwards, good profits can be made. In a slower moving market you need to make serious gains on your improvements just to cover the transaction costs.

BEWARE THE TAX MAN

If you use this strategy too often you might lose your capital gains exemption. You could also be viewed by the tax man as a property developer and lose the capital gains 50% exemption. A bad outcome – so seek professional advice.

“Adding value by carrying out improvements needs to be carefully planned and executed. Not everything adds value. It is easy to over-capitalize and not get your money back. What you do need to be is market appropriate.”

 

Previous Article: Buy and Hold

Next on the blog: Buy and Sell or Subdivide or Hold

 

Buy and Hold

PROS

The ‘Buy, renovate and sell or hold’ investment strategy can maximize potential gain by improving areas of the property that are unsightly. An un-landscaped front yard, a messy entrance way, a run-down bathroom or kitchen on a property are example of these. This is a good strategy for those with the time and skills that can complete the renovation themselves.

To minimize transaction costs, most investors choose to buy, hold and bank on the average capital growth of around 7% to 10% per annum. The transaction costs are averaged out over the years that the property is held and become far less significant. A ‘buy and hold’ strategy should be implemented for at least 7-10 years. The longer the better.

You don’t need to be constantly monitoring the market – every latest deal and every market movement. Simply buy a good property in a good location with good rental returns and high tenancy rates and then you forget all about it. Also, set yourself a goal of say, one property every 6-12 months. Once you have this property you just forget about it. You can continue on with your day job knowing that the property is on remote control’.

“The ‘buy and hold’ strategy allows you to withdraw equity from each property as it grows. Then use this towards your next purchase. This saves the significant transaction costs of constant buying and selling.”

CONS

One disadvantage with the ‘buy and hold’ strategy is liquidity. Due to the longer time-frame required for this strategy, if you need quick cash for emergencies it can be sometimes difficult to access. That is where having the right strategy in place won’t over-expose your financial well-being.

hold and buy investment strategy

Previous Article: Determining the Right Investment Strategy

Next on the blog: Buy, Renovate and Sell or Hold

 

Determining the Right Investment Strategy

Discover the most critical step to property investment before you start to invest – if you DON’T define this step you will never have success with property investment. The first step is determining your strategy.

The question is not “what is the right strategy” but rather “what is the right strategy for you?”, you should not invest in property until you know your strategy.

Developing the strategy right is an absolutely crucial first step. The majority of investors are what we call “accidental investors”- they accidentally buy a property without much thought. Perhaps they upsized to a new house and decided to rent their old house rather than sell, maybe they bought while on holiday, perhaps they inherited or maybe they just bought because it seemed like a good idea. However, they most likely did not sit down and actually plan what they were attempting to achieve from their property investments.

Property Investment strategy

Everyone who wants to be financially independent needs to plan how they are going to get there! Financial independence rarely happens by accident. The plan needs to include these three important points:

DECIDE:

What you want to achieve?

Why you want to achieve it?

How you are going to achieve it?

 

Next on the blog: Buy & Hold