How to make money from investing in real estateFri Jan 04 2019. 3 min read
There are 4 main ways people make money from property and these are very depend on your strategy and the level of risk you are most comfortable with. Often investors start with buying and holding and progress to renovating and then to development projects. Below is a brief overview, see which one interests you most. 1 Buy and hold 2 Renovate 3 Off the plan 4 Development Buy and Hold For the traditional and often conservative investor, this strategy will be for you. It’s far easier to kick back and let inflation takeover. The buy and hold strategy means you purchase the property and keep it for years to come and often never sell it. Example Financials Cost - $530,000 Rent - $500 per week Rental Yield - 4.7% If this suburb rises at 10% per year, the owner will make $50,000 + per year. Renovate The Renovation game is great for the conservative investor as well as the risk taker, depending on the scale of which you are renovating. Renovations can be a great way to increase the capital value of the property as well as the rental return. Renovating also has a number of tax benefits if structured correctly. Estimated Financials Cost - $460,000 Renovation - $50,000 Total Cost - $510,000 Valuation after - $625,000 Profit - $115,000 Rent Before - $460 per week Rent After - $640 per week Rental Yield After - 5.35% If this suburb rises at 10% per year, the owner will make $50,000 + per year. Off the Plan There are many investors out there that buy off the plan, not only because there are varying stamp duty concessions making the initial purchase cheaper, but there are also the benefits of a tax depreciation schedule. The main thing to consider with this type of investment is that most units are sold prior to the development starting. This is so the developer in the main can secure enough funding from the sales to fund their finance with the bank. Once the development starts it typically takes up to 2 years until the development has been completed. A lot can happen in 2 years, the market can go up, down and sideways, potentially making your investment no longer worth what you have paid for it. Estimated Financials Cost - $510,000 Value at settlement - $600,000 Profit - $90,000 Deposit - $5,000 Rental Yield After - 5.35% If this suburb rises at 10% per year, the owner will make $50,000 + per year. Development Developments are higher risk and are typically for the seasoned investor. There are varying types of developments you can do all with various levels of risks. A lower risk development is to buy a block of non-strata units, renovate the units and strata title the building. Estimated Financials Cost - $1.9m Renovation - $600,000 Total Cost - $2.5m New Value - $3.5m Profit - $1m If this suburb rises at 10% per year, the owner will make $350,000+ per year. When the block is strata titled the property’s value should rise by 10% to $3.8m. Refinancing to 80% means the bank would lend $3m, which means the initial money that was put in, can be taken back out, meaning you now own a $3.8m property with none of your own money in it.