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Investment Strategies

When we meet a new client, we discuss the many investment strategies they can use to set up a successful process.  Here are a few successful options we have used

Buy and Hold

This is perhaps the most popular investment strategy among industry advisers and professionals.

Buy and hold refers to acquiring  property with the goal of generating long term capital growth.   Usually you buy a property (using borrowed funds) that appreciates in value over time, with live-in tenants to help you pay off the mortgage.

As property values go up and rents increase, Buy and Hold investors often parlay their equity into purchasing the next property in their portfolio.  Then in future, they may sell some of their stock to reduce debt and emerge with income generating assets.

With good asset selection and the benefit of time, Buy and Hold can be a very effective and low-hassle strategy.

Negative Gearing

Negative gearing can be combined with other strategies (e.g. Buy and Hold), but the term refers to a property investment where the annual expenses exceed the rental income.

This leaves the investor with a loss, which under Australia’s current (and hopefully future) tax laws, can be claimed as a deduction.

Historically, particularly in capital cities, property prices have grown more than enough to offset the small loss incurred by a period of negative gearing.

Positive Gearing

The flip side of the coin is Positive Gearing – where the property generates a higher income than expenses, before tax is taken into account.

Positively geared properties are usually hard to find (and if a newly purchased property is genuinely positively geared, there will usually be a downside, such as poor capital growth prospects).

However, properties may become positively geared over time, as increases in rental income outstrip expenses.

Positive Cash Flow

A close cousin of Positive Gearing is Positive Cash Flow.

Positive Cash Flow properties are properties that put cash in the investors’s pocket after depreciation and tax deductions are taken into account.

New properties or newly renovated properties have the greatest potential to deliver positive cash flow because they offer the largest depreciation benefits.

Renovation or Flipping

Renovating a property is a way of manufacture equity, allowing you to fetch a higher rent, or sell the property in a process known as “flipping”.

Renovation sounds simple, but by the time you factor in your hard costs, plus the cost of any time and labour, it’s relatively challenging to make money over and above what you could make via other investment strategies.

Nevertheless, some investors are very skilled at renovation and are able to make it into a lucrative investment model.