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Monday, March 07, 2011

This article describes the second strategy of nine property investment strategies.


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Strategy 2 – Buy, renovate and sell or hold

Pros

 Can maximize potential gain by improving areas of the property that are unsightly such as an un-landscaped front yard, a messy entrance way, a run-down bathroom or kitchen.

Good strategy for those with the time and skills (i.e. tradesmen or women) that can complete the renovation themselves.

Exceptionally good strategy for those that have the lifestyle suitable to living in the property for a year or more, whilst they renovate it, and then sell it capital gains free as it was their principal place of residence. (Beware – you do need to be careful with this strategy as the tax office has regulations against it – seek professional advice.)


Cons

The main disadvantage of this strategy is the chance of getting it wrong and making a loss.
  
  “Adding value by adding    improvements needs to be carefully planned and executed. Not everything adds value. It is easy to over-capitalize and not get your money back. What you do need to be is ‘market appropriate’.”
Transaction costs are another major disadvantage of this strategy. In a market moving quickly upwards, good profits can be made but in a slower moving market you need to make serious gains on your improvements just to cover the transaction costs (see above re costs).

Beware the tax man – as above. Do this strategy too often and you will not only lose your capital gains exemption but also could be viewed by the tax man as a property developer and lose the capital gains 50% exemption as well. A bad outcome – so seek professional advice.

Download the full report at www.wfscanberra.com.au
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