EPI156 | The how, why and what of property investing strategy

Everyday Property Investing

Property Investing Strategy – Part 1

The how, why and what of property investing strategy

Overview – Goal/purpose vs Mechanics

1. 1. All property strategies aim for one or both of the following
      • Capital Growth
      • Income/yield
   2. How we achieve these outcomes is where the mechanics of a strategy come in:
      • Buy and Hold
      • Positive Cashflow
      • Renovation
      • Development – DA, strata title, subdivision, building
      • Rooming accommodation
      • Short Term accommodation
   3. Often various strategies may be combined within the one project – e.g. subdivision/renovation/building

Why is choosing a property strategy important when people start out investing?

Start with the end in mind

1. 1. Having a strategy allows you to choose a state, region, suburb and property,
   2. Without a strategy you have no criteria to determine if a property is good for you personally
   3. Many good properties, but if they don’t fit the strategy it isn’t a good property for you

Is there one best strategy everyone should follow?

What are some of the mistakes people make when choosing a property strategy?

1. 1. Not understanding when and why to use certain strategies
   2. Choosing a strategy that is exciting, popular at the time but doesn’t link to the investors goals or investor situation
   3. Choosing high risk strategies with only positive expectations (ie not considering or understanding the risks)
   4. Thinking you have to do just one thing
   5. Thinking one strategy is going to be perfect

What do people need to consider when choosing a property strategy?

1. 1. Finances (what you have yourself or can access via bank or other methods)
   2. Cashflow required to hold the property
   3. Time frame
   4. Risks & risk profile
   5. Back up plans
   6. Personal strengths and weaknesses
   7. Negative gearing is not an investment strategy – it is a by product of investing
      1. Negative gearing (note: it’s not a ‘strategy’) – What is it, pros, cons
         • Pro – better locations – tenant demographics, capital growth
         • Pro – tax advantages
         • Con – making a loss
         • Con – can only do this so much before no serviceability
      2. Positive gearing – What is it, pros and cons
         • Pro – Not making a loss!
         • Pro – Maintains (or potentially improves) serviceability, so more sustainable
         • Pro – can use the excess income to pay down the property or invest in others
         • Con – pay tax on income (I don’t really see that as a con)
         • Con – usually regional or outer suburbs – tenant demographics, lower growth
         • Con – hard to find
         • Con – if only slightly then would need a lot of them
           

What’s next

In the upcoming we’ll address each of the various strategies in more detail and talk to some experts and investors out there using these.

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