3 tips to grow your wealth with property (regardless of the market)
Here are three tried and tested ways to grow your wealth through property, regardless of what the market is doing:
1. Buy below market value:
This is a strategy that undoubtedly delivers the best bang for buck when it comes to making money through property. Why I hear you ask? The old saying that you make money when you buy is never more relevant than in flat markets, periods of time where we can no longer rely on passive capital growth to drive property values north. Buying below market value provides us with an opportunity to build equity without having to wait for market or manufactured growth.
So that all said, how exactly do you buy properties below market value? Do you need to be lucky to buy below value? Well it very much depends on how you define luck. For us, and to quote Roman philosopher Seneca, “Luck Is What Happens When Preparation Meets Opportunity”. Our ability to buy properties below market value comes down to:
- Preparation x 3: 1) doing our homework so that we possess intimate, up-to-date knowledge about market in which we are looking to buy, 2) building relationships with local agents and vendors, and 3) getting our finances in order and our team lined up so that we are ready to pounce when an opportunity presents itself
- Opportunity: this is where our hard work in the preparation-phase comes to fruition. Be the buyer who knows a great buy when they see one, who has built relationships with people who are in control of property we want to buy, and who is ready to get a deal done when the opportunity presents itself. We recently purchased a property for an investor client 15% below the initial list price, all because we had built a relationship with the agent, our client was ready to act and we understood and were able to solve the vendor’s problem – the need for a quick sale.
And remember, we may need to turn over a few rocks before we find what we are looking for – but great deals are always worth the effort. Instant equity anyone? Yes, please!
2. Add value:
For truly passive investors, buying a turnkey set and forget property which they hold in their portfolio for 2+ market cycles can be a great strategy. For anyone seeking near-term gains, the strategy of ‘manufacturing’ growth by adding value can be an enormously effective strategy. Whether via a cost-effective cosmetic renovation (re-investing 10% or less of the property’s value in improvements) or a substantial renovation (re-investing 20% or more of the property’s value in major improvements) the aim with all value-add projects should be an increase in the value of the property disproportionate to the additional investment required, i.e. A $2 increase in the value of the property for every $1 spent.
Best of all, on completion of our value-add project we have options. Depending on your lending picture there is scope to rent the property out, re-finance and release part of the value to fund other investments, or alternatively, we can put the property to market and a realise a profit on sale. Personally, I must admit to having a personal obsession with renovations, having completed 5 renovations for profit in the past 6 years – I am well and truly a fan!
3. Buy properties with development potential and holding income:
To quote the oracle of Omaha it was Warren Buffet who once said, “Be fearful when others are greedy, and be greedy when others are fearful”. In this context, having just come off one of the largest new construction booms this country has ever experienced and with construction and development funding drying up, development sites are being put back to the market at a rate of knots.
The opportunity for investors is to purchase properties with development potential, or perhaps development approvals in place, at a discount to true value. Obviously, this is a strategy that is not without its risks. Successful execution of this strategy comes down to the capacity of the investor to hold the property until such time as a market recovery occurs – as such, properties with holding income are the golden geese. Target properties which require little of your own capital to cover holding costs and sit tight. As market confidence returns, savvy investors are well-positioned to cash in their chips – either by putting the property back to market at a premium to the original investment value, or raising the funds required to develop the property and ultimately realise development profits.
Ready to take your next step (or first step) into the property market? Know that your property strategy is sound with a complimentary meeting with the property experts at Capital Property Investment Advisers. Please book a complimentary appointment here or call our office to make an enquiry.
About the author: Tom Haigh is a passionate property investor and self-confessed renovation addict. Tom works with private investors and business owners in Newcastle who leverage Tom’s $500M experience in property to realise their own wealth creation goals. Tom is a licensed buyer’s agent, and co-founder and managing director of Capital Property.
The publications by Capital Property Investment Advisers are for general information only and are intended to assist you in understanding the nature of the property market. The information contained in this editorial is for Australian residents only. This editorial does not consider your personal circumstances and has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. This editorial does not constitute, and should not be relied on as financial or investment advice or as recommendations (expressed or implied) and it should not be used as an invitation to pursue any investments or investment services. No investment decision or activity should be undertaken on the basis of this information without first seeking qualified and professional advice. Capital Property Investment Advisers disclaims any and all duty of care in relation to the information and liability for any reliance on investment decisions, claiming the use or guidance of this publication or information contained within it.