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The different types of real estate investment strategies

Updated: May 25, 2022

Property investment is a tried and trusted method of creating long-term and sustainable wealth. In fact, 90% of millionaires have invested in property

Property investing is comprised of various strategies. While there's no one particular method that's better than another, all forms will aim to assist you on your journey to wealth creation.

Buying an investment property is one of the most effective ways to create an additional source of income. In today's day and age, it's important that we're considering several methods of creating income for our retirement.

Here at Real Estate Investment Finance, our favourite method for creating passive income is real estate investment.

In this article, we'll explain the various investment strategies used by property investors. We'll also share what they can achieve for investors when buying property as well as their pros and cons.

The buy and hold property investment strategy

The key to this strategy is in it's name. This long term approach allows investors to withdraw equity from a property(ies) that they own so that they can use it to fund the purchase of more investment properties.

Pros of the buy and hold strategy:

If you buy in the right location with a good rental yield and high tenancy rates, you can forget about the property. You simply need to set and forget as the property quietly generates you passive income.

This strategy also allows you to create long term gains and short term cash flow.

Cons of the buy and hold strategy:

When using this strategy, it's major disadvantage is the risk for liquidity. As it's a long term strategy, if you need to access cash for emergencies it becomes more difficult to access.

If this is a strategy that you wish to pursue, we can teach you how to set up your portfolio without being exposed to potential failure.

The buy, renovate & sell or hold property investment strategy

This real estate investment strategy entails purchasing homes below their market value. Then you renovate the property and sell it at a higher value than you purchased it for. If successful, you will generate a great profit. Alternatively, you can hold it and let it's market value work for you as you build equity.

Pros of the buy, renovate & sell or hold strategy:

This is a great strategy for those with the time and skills to complete the renovations. It's also good for those who have a lifestyle suitable for living in the property while it's being renovated (as it saves on living costs).

The renovate, buy and sell investment strategy

Cons of the buy, renovate & sell or hold strategy:

The biggest downfall of using this method as your real estate investing strategy is that there's a chance that you can get it all wrong and end up making a loss. You really need to know what you're doing in order to successfully pull of this investment strategy.

The buy, subdivide & sell or hold property investment strategy

A great way to create wealth through property is purchasing one and subdividing it. This strategy involves dividing a property into two or more properties, with two separate titles.

Pros of the buy, subdivide & sell or hold strategy:

This is a great opportunity for those who are serious about making profits from land that is capable of subdivision. It can also provide instant equity and a positive cash flow.

Cons of the buy, renovate & sell or hold strategy:

You will need to have a good amount of capital behind you as it becomes more difficult for the banks to lend you money, due to security. You also need to become well educated on local councils and their development approval processes etc. when subdividing land.

The buy & sell property investment strategy

While we don't deal with established properties, we have connections who do. This investment strategy involves purchasing an existing property and turning it into an investment.

Pros of the buy & sell strategy:

You can purchase a property and hold it to make a profit and then sell it when it increases in market value.

Cons of the buy & sell strategy:

Transaction costs make this strategy more difficult to profit from. To even be able to break even, you'll need the property to increase by around $40,000 in value. This strategy is more suitable for an experienced property investor.

The buy, build & sell property investment strategy

This strategy involves purchasing land and building a property on it. Then once the build is completed, it's sold with the hope of making a profit.

The buy, build and sell investment strategy

Pros of the buy & sell strategy:

The investor becomes involved with the building process and there is great profit to be made from it upon completion.

Cons for the buy & sell strategy:

There are certain tax consequences from this method. If there are delays, it can also lead to lengthy hold periods and could erode profit from the project.

The buying off the plan property investment strategy

This basically means that you're entering into a contract to purchase property prior to, or during the construction phase of the development with settlement of it occurring upon completion. Some investors use this strategy to purchase a few properties and then sell them before settlement. Then the profits made are applied to reduce debt on properties they retain.

Pros of the buying off the plan strategy:

When buying off the plan, you're locking in the price of the property at the current date. Then when you sign the contract you don't need to worry about inflation. This can result in quick profit. This strategy may also come with stamp duty concessions, which provides additional savings.

Cons of the buying off the plan strategy:

Buying off the plan can be risky. Especially if the builder goes bankrupt, resulting in the development not being completed. Other cons include potentially high strata fees, the finishing's not being what was promised, or that construction can go over the sunset period.

House & land packages

This is our preferred investment strategy. We assist all clients from owner-occupiers to investors with full turn key fixed priced house and land packages. It involves purchasing a dual contract package and building new investment properties on registered land in growth regions.

Pros of house & land packages:

There are many pros to this strategy such as stamp duty savings as you only pay it on the land portion. You are also covered by builders warranty and there is lower maintenance involved with this strategy. Other pros include; maximum taxation benefits and investors being able to make a gain between agreeing to purchase and when construction is complete.

Cons of house & land packages:

The costs of servicing the loan throughout construction periods need to be considered. You also need to account for builders warranty. Another con is that in some cases, banks will become conservative on construction valuations due to increased risk of the property not being completed.

Your journey to wealth creation...

We would love to be able to assist you on your journey to wealth creation. We're helping investor clients across the country to be able to achieve success and build their wealth through property. Please reach out to our team of specialists for a FREE consultation to determine the best strategy for you. Our details are listed below.

Ph: 1300 130 932

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