When investing in property, there are two strategies, active and passive. In this article we are going to take you through your options and the pros and cons of each.
To recap, an active investor is one that’s involved to make the money grow by investing sweat equity. So essentially, you are working for your money. A passive investor is one that invests money and has the money work for them. For more information about active and passive investors, click here.
Buy and Hold – Passive Strategy
Buy and Hold strategy is a set and forget strategy, essentially what its name makes it out to be. It’s a passive strategy as you invest your money for the long-term and let the investment do all the work for you. You don’t sell the property based on short-term market fluctuations and you gain cashflow through collecting rent payments from tenants.
This strategy has the lowest risk as you are holding the property for a long period, there is an increased chance of achieving capital growth. As rent increases overtime, so does your cash flow and the money in your pocket.
Development – Active Strategy
Development strategy is when you purchase a plot of land and subdivide it into a series of properties. You can choose to keep the properties or sell some of them for a profit.
Renovation – Active Strategy
Renovation strategy is when you purchase a property that is a little run down and spend money on fixing it up. Renovating adds value to the house and also increases your rental yield. You can renovate to flip the property or renovate to hold it for the long term, using a buy and hold strategy.
All three strategies require a significant amount of money to begin and maintain these investments. With a buy and hold strategy, you need to be able to cover the costs of the property regardless of what is happening in the market. Similarly, with a development strategy, you need money to fund the development and manage it while looking for tenants and buyers.
Finally, with renovation strategy, there is the potential that you can underestimate how much renovation is needed for a property and go overbudget. All strategies have the potential to make significant profit in the long-term, but in the short-term you are required to have a substantial amount of money to begin and maintain these types of investments.
While you consider your next property investment, think about what type of investor you want to be, active or passive. A coach can help you identify a strategy to help you achieve your goals. For more information and help, contact us Silvertail Property Group and together we can work out the best strategy for you.
Call us today for an obligation-free chat on 1300 846 956 to find out more or Get Started Now.
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