Property Investment Strategy

Which property investment strategies do Australian investors use?

Australian investors tend to use one of seven property investment strategies, or a blend of two. Each one trades off growth, cash flow, effort and risk in a different way.

• Capital growth. Main goal: equity over time. Suits higher income earners with a long horizon. Key risk: holding costs while you wait.
• Positive cash flow. Main goal: income from day one. Suits investors with tight serviceability. Key risk: slower growth in high-yield markets.
• Rentvesting. Main goal: enter the market sooner. Suits buyers priced out of where they want to live. Key risk: loss of some first home concessions.
• Value-add. Main goal: manufactured equity. Suits hands-on investors with a buffer. Key risk: renovation cost blowouts.
• Development. Main goal: create new dwellings. Suits experienced investors with capital. Key risk: approval and construction risk.
• SMSF. Main goal: retirement wealth. Suits members with a sizeable fund balance. Key risk: strict lending and compliance rules.
• Commercial. Main goal: higher yield, longer leases. Suits portfolio builders wanting to diversify. Key risk: longer vacancy periods.

How does a capital growth property investment strategy work?

A capital growth property investment strategy buys property in markets where values are expected to rise faster than average, then holds it while equity builds. The rent may not cover all the costs, so the investor tops up the shortfall from their income.

Growth markets tend to share the same drivers: population growth, new jobs, infrastructure spending and limited new housing supply. We weigh those drivers against vacancy rates, days on market and the share of owner-occupiers in a suburb.

This strategy suits investors on a stable income who can hold for seven to ten years or more. The equity it creates is what funds the next deposit, which is why capital growth sits at the start of many portfolios.

Our full property search service applies this filter across markets, so you see a shortlist of growth-ready suburbs rather than a list of available listings.

What is a positive cash flow property strategy?

A positive cash flow property earns more in rent than it costs to hold, after the loan, rates, insurance and management fees. It puts money in your pocket each month instead of drawing on your salary.

To compare options, investors start with rental yield. Gross rental yield is the annual rent divided by the purchase price. A $650,000 property renting at $600 a week returns $31,200 a year, a gross rental yield of 4.8%.

Higher yields are more common in regional centres and some outer-ring suburbs. The trade-off is that these markets can grow at a slower pace, so we test whether the yield is stable or propped up by a short-term rental spike.

Positive cash flow also helps your borrowing capacity, because lenders count rental income when they assess the next loan. Professional property management keeps vacancy low and rent at market, which protects the numbers this strategy relies on.

Is rentvesting a good strategy?

Rentvesting is a good strategy for buyers who want to keep renting where they live while they buy an investment property in a more affordable market. You keep your lifestyle and still start building equity.

The appeal is simple maths. A buyer who can't afford a home in the Inner West may be able to buy a growth property elsewhere, collect rent and claim the holding costs as deductions.

There are trade-offs. Buying an investment first may affect your eligibility for some first home buyer grants and stamp duty concessions, which depend on living in the property. Speak with your accountant before you commit.

Rentvesting works well when the first purchase is chosen for growth, so it can fund a future home deposit. If you later decide to buy a place to live, our first home buyers agent service picks up from there.

How do you add value to an investment property?

You add value to an investment property by buying below its potential and improving it through renovation, a better layout or a change in use. The goal is to create equity faster than the market would on its own.

Common value-add moves include a kitchen and bathroom update, adding a bedroom or study, landscaping, or fixing a problem that put other buyers off. Each dollar spent should add more than a dollar to the valuation or the rent.

The margin is made on the way in. Our property appraisal and negotiation team prices the property as it stands and as it could be, so you don't pay for the upside before you create it. When the property goes to auction, our auction bidding service keeps you to that limit.

This strategy suits investors who have a cash buffer and can manage trades, or who are happy to pay someone who can.

When does a development strategy make sense?

A development strategy makes sense when a site can hold more dwellings than it has now and the investor has the capital, time and risk appetite to see it through. Options range from a granny flat to a subdivision or a small multi-dwelling project.

The numbers depend on zoning, lot size, frontage, council controls and construction costs. A site that looks cheap can become expensive once you factor in approvals, holding costs and finance during the build.

We assess these sites with town planners and builders before you make an offer. Where the project ends in a home you plan to live in, our residential buyers agent team can help you plan the purchase with that end use in mind.

How does SMSF property investment work?

SMSF property investment lets a self managed super fund buy residential or commercial property as part of its property investment strategy for retirement. The property is held for the fund members' retirement, not for personal use.

The rules are strict. The purchase must meet the sole purpose test, the fund can't buy a residential property from a related party, and members or relatives can't live in it or rent it. Any loan must be a limited recourse borrowing arrangement, which lenders tend to price higher and cap at a lower loan to value ratio.

Commercial property is a common SMSF choice, because a business owner's fund can buy the premises and lease them back at market rent. SMSF property investment needs input from your accountant or financial planner, and we work alongside them on every purchase.

Should you add commercial property to your portfolio?

Commercial property is worth adding to your property investment strategy when your residential portfolio is in place and you want higher income and longer leases. Many commercial leases run three to ten years, and tenants often cover the outgoings.

The risks differ from residential. Vacancy periods can be longer, values depend on the tenant and the lease, and lenders ask for larger deposits. Diversifying into commercial suits investors whose cash flow can absorb a vacant period.

Our guide to commercial property investment covers yield, lease terms and tenant quality in more depth. When you are ready to buy, our commercial buyers agent team sources and negotiates the asset.

How should you structure a property portfolio?

Structure a property portfolio around how you will own it, how you will fund it and the order of your purchases. Getting this right at the start saves tax, protects borrowing capacity and keeps your options open.

Your property investment strategy should set out the ownership structure first. Ownership can sit in personal names, joint names, a family trust, a company or an SMSF. Each one changes how income is taxed, how losses are treated and how capital gains are handled when you sell. Your accountant should sign off on this before you buy.

A sound property portfolio strategy also spreads risk across markets, property types and price points. It avoids cross-securing loans where possible, so one property can be sold or refinanced without tying up the rest.

How do you scale a property portfolio?

You scale a property portfolio by recycling equity from one property into the deposit for the next, while keeping enough cash flow to service every loan. Growth funds the deposit and yield keeps the portfolio serviceable.

Lenders allow you to borrow against the gap between 80% of a property's value and the loan owing. A property worth $900,000 with a $500,000 loan has about $220,000 of usable equity before costs.

To build a property portfolio that keeps growing, each purchase needs a clear role: a growth asset, a yield asset or a value-add project. We review your property investment strategy after each settlement and look across the markets we buy in for the next fit.

See how this played out for one client: a $150k equity gain in Western Sydney in 12 months.

How does BFP Property build your investment strategy?

BFP Property builds your investment strategy in four stages, and the plan comes before any search begins.

1. 1.Goals and numbers. We map your income, savings, borrowing capacity and timeline.
2. 2.Strategy selection. We match you to one strategy or a blend, and set the role of your next purchase and the ones after it.
3. 3.Market and property brief. We turn the plan into a brief: price range, property type, target markets and the numbers each property must hit.
4. 4.Review after each purchase. We revisit the plan after every settlement, as your equity, income and the market change.

Our director Ben Plohl is a Chartered Accountant and active investor, so the numbers sit at the centre of every plan. For more on how he approaches it, listen to The Property Investment Toolkit on our podcast.

Whether you need property investment advice for a first purchase or a review of an existing portfolio, a property investment strategist on our team can help. Think of us as your investment property strategist: we plan the portfolio, then buy it with you.

This page is general information. It does not take your personal circumstances into account. Speak with a licensed financial adviser and your accountant before acting.