Most investors start with the ‘buy and hold’ strategy.
This occurs because most new investors have bought properties before and they are reasonably comfortable with that process. As well as that, for many years the ‘buy and hold’ strategy was the way to go and the newer strategies have developed over the years.
I would like to touch on the ‘buy and hold’ strategy here and put some ideas to you. I am not saying one way is better than the other because each investor has their own goals and their own experiences to draw on and therefore will want to invest in a different way.
What I want to make comment on is two common schools of thought:
- buy cheap, renovate and rent
- buy well and rent
The reason that I want to talk about these is because as you are talking to different people you will hear many stories that will have you wondering just exactly what you should be doing.
Buy Cheap, Renovate and Rent
This strategy, for a new investor, could be fraught with problems so I will list some of the issues that need to be considered if this strategy is going to be implemented:
- what experience or expertise do you have in renovating
- do you have the required knowledge to know how to renovate a property and make money, not just ‘do the job’ (no point in doing the job if it is not going to make money!)
- why is the property cheap, is there a major problem with it, is the neighbourhood secure
- once you have renovated, is there the demand for rental that will achieve the rental income that you need
- will the tenants be of a quality that will look after your investment
- will there be ongoing costs related to this property because of the state of the property or the location of the property
Buy Well and Rent
Note that in this instance we have not talked about renovating. Also, I have said ‘buy well’ and by that I mean buy in a good suburb which will attract awesome tenants.
I have not discounted here that you may be able to buy the property below valuation, but that it is located in ‘the right’ position which will maintain its value and also attract the type of tenants that will care for the property.
When buying your first investment property you should try to buy below valuation if possible and it may even take several offers to be able to do this, and that is OK. Don’t feel that you have to buy the first property that you find suitable. If you cannot get it at the right price then walk away.
My reasoning behind this is that if you can buy a property for $345,000 which is valued at $380,000 then you have immediately made $30,000 in equity on settlement.
Now is that profit or what?
Say you bought two of those in the first year you will have increased your equity by $60,000 in 12 months, and that is without any market increases!
You can see how it is worth the wait to get the right property at the right price!