Finding an investment strategy that gives you the best results and the biggest profits can take some trial and error. Your strategy could be based on what you want to achieve, the risks you are willing to take, and your future needs.
For the 2019 Real Estate Investment Sentiment Survey conducted jointly by Your Investment Property magazine, Michael Yardney’s Property Update and CoreLogic’s On The House, more than 1,800 investors shared their favorite strategies. Here's what we found out!
Long-term
A long-term approach to investing remains the number one strategy for investors.
Forty-nine percent of those surveyed said that long-term capital growth was their preferred investment strategy. According to Metropole Property Strategists CEO Michael Yardney, savvy investors know that the only way to be financially free with property is to build a substantial asset base.
Capital growth or having a large asset base is the only way out of the rat race, he adds.
Meanwhile, 19% said they would buy property, add value and keep it long-term.
Sarah Megginson, editor of Your Investment Property Magazine, says it's worth noting that long-term capital growth remains the number one strategy for investors.
"It is really difficult to own property in a market where the headlines are screaming at you every day that real estate prices are booming and the sky is falling. It can be very difficult to stay the course and not panic, ”she says.
"This is why it is so important to take a long-term view and have a clear strategy – it keeps you on track in times of trouble."
The results show that people still see the value of holding and having a long-term view of their real estate portfolio.
Profit orientation
Preparing to generate cash flow is another tactic that investors prefer.
The survey found that 16% of respondents use positive cash flow as a strategy. Thirty-seven percent of respondents also mentioned that their portfolio generates positive cash flow.
"It is always better that (an investment property) is positively oriented, which means that the rent is greater than the expenses, so that (you will not have to) supplement it with another income." Generally, most people supplement it with their salary. However, most positive gear properties – not all – but many positive gear properties do not show the same capital growth as negative gear properties, "said Ed Chan, co-founder and non-executive chairman by Chan & Naylor.
Some properties are negatively oriented because their capital value is quite high in proportion to the income of the investor. The demand for property pushes up the value, the yield decreasing as the value of capital has increased.
The survey also found that 33% of the respondents had a negative orientation investment portfolio.
The negative gear was a huge problem in 2019 when work suggested the idea of ??tinkering with it, according to Megginson.
"There is a massive misconception that negative gears give homeowners these massive deductions, ruining the real estate market. In reality, the majority of owners are moms and dads who are trying to get ahead. Not to mention that negative gearing is available on any investment – it's not just properties, it's stocks too, "she adds.
The government has introduced a negative approach to encourage more people to buy houses and to welcome more people. If it is abolished – together with the owners – the number of properties available for rent for people would decrease considerably, forcing the government to offer more housing.
However, Yardney warns that negative gears are not an investment strategy.
"People seem to think it is sometimes. Now, that's just the way you finance your property at a given time. The fact that many of the investors in our survey had substantial real estate portfolios would suggest that they have been holding them for some time and it is highly likely that they have started to have a negative orientation, "explains- there.
"When you start, you borrow as much as you can to get into the market, but over time, you slowly repay the debt or the loan-to-value ratio decreases as the value of your property increases. It's just a moment and the way you finance it as opposed to an investment strategy. "
The reverse side of investment
Only 5% of respondents said they buy, add value, and then sell a property.
Megginson shared this when she started investing 15 years ago; this strategy was a very good way to make money. In fact, that's how it started: she bought cheap apartments, quickly and aesthetically renovated them, and sold them to quickly earn $ 25-30,000 each.
But these days, this tactic becomes more difficult to implement, because entry and exit costs are skyrocketing.
"The moment you have stamp duty at entry and the real estate commission at exit, then you pay capital gains tax on your profits, plus the cost of your renovation , buy, add value and sell is a very difficult strategy to be successful these days, "she said.
However, it could still depend on what you do with the reno, said Yardney.
"Structural renovations, adding rooms, adding suites can make a difference big enough to overcome these hurdles related to taxes, stamp duties, and selling and holding costs" , he says.
But they take longer to do and require development approvals.
Investing for tax benefits
Although typically frowned upon, some still use investment for tax benefits as a kind of strategy.
Two percent of respondents said tax benefits were their preferred strategy, while 4% said they weren't really tactical.
"Investing in tax benefits is just going backwards and forwards one step," warns Megginson.
Adds Chan, "Often people say" Oh, I'm saving on this, so I'm going to buy a property. "This shouldn't be a reason to invest. The reason why the repayment tax is good is that it lowers the cost of owning the property, and the idea behind that is that if i have to pay a thousand dollars a week in tax, i can redeploy some of that money into the property instead of sending everything to the taxman, but you have to invest in a quality asset, so that it increases in value over time. "
Ultimately, it is essential to have a solid strategy for your portfolio.
The people who succeeded are those who simply continued and did not panic during stressful moments.
"It is so crucial to have a long-term strategy and stick to difficult times," says Megginson.
