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Which property investment strategy gets the best results - renovating long-term investing or flipping?
Blogger: Otto Dargan, director, homeloanexperts.com.au
We all know some investors make a motza, while others get into all sorts of trouble. The question is what made the difference between the two? More often than not it is the strategy that you choose that will make or break your investment success.
You can buy and hold, renovate, develop, use options, wraps or any number of different strategies. Some of them work and some of them are at best a waste of time and at worst are dangerous.
Play to your strengths
We’ve all got our own strengths and weaknesses. I was always great at long distance running but no matter how hard I tried I could never win in a sprint and I’d sink if you put me in a pool.
The same is true for investing. Not every strategy will work for every person.
When you invest you have to choose the strategy that matches your strengths and your long term goals.
Develop, renovate or buy and hold
Are you good with your hands? Do you have time to manage a construction project? No? Then stick to minor cosmetic renovations or don’t renovate at all.
Developing properties is a highly specialised strategy and I wouldn’t recommend that you take this on unless you have experience with some minor construction jobs, you have a lot of equity and you have the time to manage the project through to completion. If you don’t meet those criteria then you may just build a hole in your wallet.
Does that mean that buying and holding is the best strategy for everyone who can’t use a hammer? Not necessarily.
Personally I’ve got no eye for design at all… so I get advice if I am going to renovate so I don’t turn the worst house in the street into the worst house in the suburb. And I can use a hammer but I’m busy with my mortgage broking business so I hire tradesman to do all the work.
In other words you can fill in your weaknesses by getting help.
Negative geared vs positively geared
If you have a high income, good equity and no time then buying and holding a good quality property in a good location is usually the way to go. Don’t overcomplicate it! You don’t have time for that and you’ll end up doing nothing which is the worst investment of all.
If you have a low income then buying properties with a high rental yield will stop you from going broke while you wait for capital gains! If you buy a negatively geared property then you’ll be stuck on property #1 for a long time.
Both strategies work well. I’ve seen investors win using both strategies if they pick the strategy that matches their situation.
In other words, there is no “best” strategy
They all work. They just don’t all work for everybody. It’s just a matter of picking the right strategy for your situation.
Once you find your strategy, stick to it!
If buying and holding is working for you then why start renovating? If your renovation projects are a gold mine then why move onto developments?
Each strategy requires expertise and experience to make them work. Changing strategies means starting from scratch.
Nine times out of ten when I see a customer change strategies it is to a strategy that is riskier. Keep it simple guys! Stick to what has worked for you in the past.