In relation to the passive income strategies from the previous post, here is another set of strategies that you can use for your property investment.
You can deploy active strategies either after you have sufficient passive income available to enhance your cash position or in order to generate cash that can be used as your own capital or down payment in any of the passive income strategies. As the name suggests, for those strategies you need to be more active as the returns come only one time for each deal, compared to the perpetual passive income. Active strategies are also more capital intensive and time consuming compared to their passive counterparts.
Buy Below Market Value
You have heard the strategy to buy low and sell high, especially in the stock market. Here is an easier strategy: Buy low and sell low. Just don’t sell the property as low as you have bought it for. We look for below market value (BMV) properties so we can make money when we BUY, not when we sell. Of course if you can sell it at market value, that’s even better.
You need to be sure of your two exit strategies, so in this case that first you are really able to re-sell it and second, you have another exit strategy available, such as renting it out.
Fix And Flip
Fundamentally, this is a variant of the BMV strategy. In the Fix and Flip strategy, you look for a run-down property (we call that distressed property) – the worse its condition, the better for you. Then you get your team to renovate and refurbish the place so it looks really great. This might take a few months and capital expenditures, but it’s usually worth it as the selling price will be much higher than what you paid for the acquisition plus renovation. Before deploying this strategy, you need to be sure what price you could sell a newly renovated house or apartment in that area.
Forced appreciation means that we do not wait until the market value of our properties appreciate by themselves over time. Instead, we take things into our own hands and add value to our house or apartment. As such, it is not a strategy in itself, but used in combination with any of the other strategies.
Change Of Use
Valuation methods and income potentials greatly differ between residential and commercial properties. It is a rather complex strategy and should not be tried by inexperienced investors.
Do You Want To Be A Developer?
When you buy a condominium unit in a new development, guess who generally is the one making the most profit? It’s always the developer.
If done correctly, property development is often the most profitable activity within property investing. Of course it also bears more risk and time commitment.
Building up equity means building wealth for the long-term. Equity is the difference between the market value of your property and how much you owe against it. If you have negative equity (i.e. you owe more than it is worth) you have a problem and potentially your lender will ask you for more money.
Hold Long Term
Equity builds up more or less by itself in the long run, just by holding on to your properties. As such, it is no strategy in its own right, but can be used with any of the strategies that do not involve selling your property after a short period of time. You will need to periodically assess which of your properties you want to continue to hold on to, or not.
You can build up additional equity by reducing your loans that you have against the property and by using forced appreciation techniques.
Commercial And Industrial Properties
I mainly focus on investing in residential properties. The commercial and industrial property market does offer good opportunities for investors too. For units with good cash flow, a passive income is possible. Often, commercial and industrial properties are bought to build equity through capital appreciation though.
It is quite a different ballgame and different rules apply than in the residential market. Even within those segments, whether you buy a retail unit or office makes a big difference.
There is no right or wrong strategy; it will always be different for different people depending on their personal and financial situation as well as their risk appetite. Please select the mix of strategies that at this time is most suitable for you and remember to review it after some time (the numbers must add up to 100% even though some of them might overlap).
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