Have you identified your Investment Strategy?
One of the most important steps when starting to build a property investment portfolio is to identify the right Investment Strategy to follow.
There are four different directions to take, and your strategy can be made up of one or a number of these options. It is however important to match the correct strategy to your particular financial situation and to your own acceptable level of risk.
Different types of Investment Strategy:
1. Buy & Hold
The most straight-forward strategy, it involves purchasing one or more properties during an initial acquisition phase, and then maintaining ownership for at least two cycles of the property market. This equates to around 15 years, and most often for longer. The property is only sold of gradually as the investor reaches retirement age.
2. Renovate & Hold
Similar to the previous strategy, a portfolio of properties is acquired over time, however with an eye for those that would benefit from some amount of renovation. Renovations in this strategy can be minor or extensive, however the property is held for at least two cycles of the market, once again (15 years plus). The properties are then only sold as necessary, later on in the investor’s working life.
3. Buy & Flip
More and more popular in recent years is ‘The Flip’: purchasing an unrenovated property, often in great need of repair or with plenty of potential. The key difference is the renovations are done as quickly as possible, and the property is immediately back on the market to realize a profit. Many are drawn to this strategy, especially in a rising market where profits seem guaranteed. However this strategy is best adopted by experienced renovators and property investors, used to managing the process efficiently, and avoiding the potential risks of buying and selling property quickly.
4. Property Development
The most expertise is required for this strategy, usually a career choice for experienced investors with a background in project management, construction and the inside workings of the real estate industry. This is often a long term goal for early property investors, once they have achieved the right level of capital. This strategy involves the design, construction, sale and leasing of units and / or townhouses from the initial stages right through to project completion, and often beyond.
If you plan correctly with well thought out goals and your own needs in mind, there is no incorrect strategy to select. The key is in identifying your best way forward up front, and adhering to that plan as you progress.