Choosing the right property investment strategy might feel like a big puzzle, especially if you're just starting in the property game. But guess what? You've already tackled a big piece of that puzzle by deciding to dive into the property market. That's a significant move! So, taking the next steps shouldn't be as tricky as it seems.To help you breathe easier, we've gathered many of Australia's favourite property investment strategies. Think of it like having a map for your investment journey. While there's no "one-size-fits-all" strategy, this list is a friendly guide to point you in the right direction. So, let’s get started!
Table of Contents
Become a Homeowner
One of the top property investment moves in Australia is purchasing a home to live in. Although you won't see instant cash flow from this property, it comes with two major financial perks:
- Potential for Increased Value: Over time, your property's value will likely rise, especially if you make improvements and hold onto it for a while.
- Capital Gains Tax Exemption: When you eventually decide to sell your home, you won't have to worry about paying capital gains tax.
This strategy is how many Aussies start investing in property and building a property portfolio.
The Buy and Hold Property Investment Game
Here's another popular strategy: the buy-and-hold approach. It's as simple as it sounds – you buy a property and hang onto it for the long haul, all to let its value grow over time.
While it's one of the more straightforward investment strategies, patience is key. It might take 7 to 10 years to see significant capital growth. But don't just twiddle your thumbs during this time – you can rent out the property and earn some income. This rental income can cover your mortgage and comes with a sweet bonus: investment property tax deductions!
Knowing the ins and outs of these deductions can make a big difference. You can claim tax benefits of investment property, the interest on your property loan, and rental expenses like advertising costs, utilities, and insurance. So, while your property is quietly growing in value, you're not just waiting but building a solid financial foundation for your investment journey.
Understand Gearing in Property Investment
Let's talk about gearing in property investment. This fancy term simply means you've borrowed money to buy your investment property. Now, your property investment portfolio can fall into three categories: positively geared, neutrally geared, or negatively geared.
Getting the Hang of Negative Gearing
Negative gearing is a bit like juggling finances in property investment. It happens when you borrow money to invest in a property, but your income from things like rent falls short of covering your expenses. In simpler terms, you're operating at a loss.
Here's the twist: While running at a loss isn't the dream scenario, Australian tax law has a silver lining. The Australian Tax Office (ATO) allows property investors to deduct these losses from their taxable income. It's a tax-saving strategy.
Most investors eyeing long-term capital growth don't rely on rental income to make their money. Instead, they combine negative gearing with the 'buy and hold' property investment strategy. This means while they patiently wait for their property's value to rise, the rent helps cover some of the costs.
Positive gearing flips the script on property investment. It's when your income from your investment property exceeds your expenses. Simply put, you're raking in a profit and can put that extra cash to good use.
However, there's a little catch. The higher income you earn from this profit can also mean a higher marginal income tax rate. So, while in the green, you might have to give a bit more back to the taxman. It's a nice financial position to be in!
The Renovate and Hold Property Investment Plan
Here's the scoop on the 'renovate and hold' strategy: the goal is to boost your property's rental yield power and jack up its value. It's a bit like giving your property a makeover to make it more valuable.
But, like with any investment, home renovation is a catch. While you can plan and prepare to minimise the risk, there's no guarantee that your renovated property will always be a success story. It's like betting on a horse race - sometimes you win big, and sometimes you don't. But that's the adventure of property investing!
The Flipping Property Investment Game
Let's talk about flipping; it's like the fast lane of property investment. Some folks aren't keen on waiting years to see returns, so they hunt for old, run-down properties to renovate and boost their sale value. This speedy process is known as 'flipping.'
The perk here is that you can pocket profits relatively fast; many aim to finish the deal within a year. But hold onto your hat because it demands a heap of skill. You need a solid plan to accurately predict the renovation's potential, or you might spend more than you bargained for.
This strategy is like a sprint in property investing, so it's often best suited for experienced investors looking to expand their portfolio swiftly. It's a bit of a high-wire act, but the potential rewards can be quite thrilling!
Diving into Subdivision Property Investment
Subdivision is like the magic trick of property investment – you take one piece of land and legally split it into two. This opens up a world of possibilities:
- You can sell off each of the newly divided parts.
- Keep one piece for yourself and sell the other.
- Hang onto both, using one to generate income and the other as your primary home.
It's like having multiple doors to choose from! Plus, once the land's been split, its value usually increases. But here's the catch – subdivision takes more time than other strategies. And while you're at it, the market might change, making it a bit trickier to sell the land.
Like renovating, the potential for a nice return is there, but it comes with its fair share of risks. So, before diving into the subdivision, do your homework and crunch the numbers to ensure it's worth the adventure.
Unlock Your Rental Property's Potential with Houst
With Houst, you can tap into the full potential of your rental property and boost your Airbnb revenue without the headache of dealing with investment property tax deductions.
We take care of it all – from securing trustworthy tenants and handling maintenance tasks to maximising your rental income and ensuring you follow tax regulations. At Houst, we've got your back.