Your Next Investment: Why Use Buy and Hold Strategy on Your Second Property?

With an unstable property market this year, several property owners are resorting to buying and holding their property to increase profit.

Buy and hold real estate strategy is a long-term investment strategy wherein an investor buys a property and holds it for an extended period. The main purpose is to wait until the property increases in value so you could sell it at a better price.

How do investors earn in buy and hold?

Buy and hold real estate is a common investment option as it promises both long-term and short-term gains. You could rent out your property, then use the rental income to pay off the mortgage and add additional cash flow to your ‘investor wallet’. Over time, the property value will appreciate allowing you to get higher profit until you’re ready to sell.

As an investor, mind your due diligence and make sure that you calculate the potential income of the property. As it should be, monthly revenue must exceed monthly expenses specific to the property. Expenses include mortgage payments, interest, insurance, taxes (rates), utility connections (water/gas), fees, and maintenance costs.

How long should you hold a property before selling?

For a buy and hold investor, five years is a reasonable time to wait before thinking of starting the selling of the property.

In real estate in general, there’s a so-called 5-year rule which states that homeowners should live in a home for at least five years before selling the property, otherwise you’ll be losing money on the investment.

Before selling, consider the following:

  • purchase costs
  • selling costs
  • capital gains tax
  • non tax-deductible periods
  • personal time/energy cost
  • holding costs of the asset

If you have rented the property during your holding period, make sure there is no tenant by the time you’re planning to sell the property to avoid complications.

Where should I buy my next investment in Australia?

A lot of factors are weighed when choosing the location of your next property investment. Whether you have $ 1 million dollars or $500,000 dollars to spend, researching the best locations in Australia is necessary.

At present, there are those considered ‘investment suburbs’ that can be found in Sydney, Melbourne and Brisbane. They offer a great location for both business and residential properties. For a relatively lower price range, Victoria, Queensland and ACT are among the best choices.

With the current challenges caused by high inflation all over the world, the real estate market in Australia has actually faced downturns in 2022. In addition, there are price drops predicted to happen in the next few years.

Depending on which angle you’d look at it, investing in properties is still a good way to grow your money. Just do your research, and make sure you work with trusted professionals.

If you are looking for an investment expert who could guide you in terms of finances, property investments and business, our coaches at DDDC Finance are the best people to consult with. We have a strong industry experience and a huge network which could be helpful to you on your next investment.

Top Investment Property Locations in Australia

To help you decide, Michael Yardney (2022) from PropertyUpdate.com.au listed down some best locations based on this criteria:

  • distance from the central business district (CBD) which is within 15 kilometers
  • population that exceeds 6,500, and
  • average weekly household income exceeding $1,164.60 which suggests they have mostly above average households

For your second property: buy and hold strategy, we agree that you can be successful in the following big cities in Australia (arranged in alphabetical order).

  1. Ascot, Brisbane
  2. Caufield, Melbourne
  3. Coogee, Sydney
  4. Elsternwick, Melbourne
  5. Highgate Hill, Brisbane
  6. Kensington, Sydney
  7. Kingsford, Sydney
  8. Ormond, Melbourne
  9. Teneriffe, Brisbane
  10. Wilston, Brisbane
Sydney, Australia

If you’re considering a property outside these busy areas, Terry Ryder (2022) of Canstar offered a fresh national list of 10 Australian suburbs or towns tipped for growth in 2022. The main criteria? Relative affordability.

Most homeowners and investors are looking out for locations that “offer a level of affordability, plus lifestyle elements and identifiable drivers of capital growth (Ryder, 2022).”

Here are the top 10 suburbs or towns that made it to the list:

  1. Belmont, Victoria
  2. Crib Point, Victoria
  3. East Ipswich, Queensland
  4. Greenacres, South Australia
  5. Gympie, Queensland
  6. Isabella Plains, ACT
  7. Miranda, New South Wales
  8. Old Beach, Tasmania
  9. Toukley, New South Wales
  10. Wellard, Western Australia

If you’re considering the buy and hold strategy, these areas are prime choices indeed. With the forecasted growth in these suburbs or towns in the next few years, holding these properties for at least five years could guarantee a good return on investment (ROI).

Buyers are looking into properties in Victoria for its relatively lower prices compared with those near-CBD locations in Melbourne. With acres of green space, Belmont is conveniently located between Geelong’s CBD and Deakin University’s main education precinct. It is about half the price of an equivalent house in Melbourne at $700,000.

Pitted against Brisbane, Adelaide is now attracting the attention of both investors and first-time home buyers. Adelaide’s economy is achieving nation-leading growth while offering great value for money to home buyers and investors. Greenacres, a suburb in the Port Adelaide Enfield LGA, offers affordable housing in a convenient location at a price less than half that of Melbourne and Sydney; priced at around $570,000.

Moreover, due to the price spikes in the Sunshine Coast market over the last three years, the City of Gympie market is thriving in Regional Queensland. The current media house price is at $375,000 which has remained attractive to many property buyers.

Canberra‘s median house price is now approaching $900,000, but suburbs like Isabella Plains, with a median house price of $685,000, offer affordable prices close to amenities such as Tuggeranong Town Centre. It is more affordable than nearby suburbs like Monash, Gordon, Bonython and Wanniassa, which all have median prices between $760,000 and $820,000.

The Central Coast, located on the northern edge of Sydney, has been targeted heavily by Sydney buyers for its water-based lifestyle, proximity to the big city, and lower prices. The median house price in most Central Coast suburbs, like Toukley with a $720,000 median price, remains well below $1,000,000.

Final thoughts

There are many options available for you. Knowing your purpose for buying your second property, third, fourth or even if it’s just your first property, is essential so you’d know which area to look around. Careful research will help you land the best property that suits your budget, purpose and goals.

Remember, real estate remains a great income-generating investment. As long as you work with the right people who could lead you to the property that’s best for you, then you and your money are both safe. With the buy and hold strategy, you also make your money and investment more powerful, allowing for better growth in an extended period of time.

At DDDC Finance, we are committed to helping our clients reach their goals and connecting them with the right people in the market.

Sources:

[1] Bakos, C. (2021, March 29). How long should you hold on to a property before selling?. Canstar.

[2] Sopielnikow, K. (n.d). A Beginner’s Guide To Buy & Hold Real EstateTOP 30 Products to sell in Australia Online. FortuneBuilders.

[3] Yardney, M. (2022, September 1). Where should I buy my next investment property in Australia?. PropertyUpdate.

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