Generating instant equity from your property investment might seem a little bit like the finding the pot at the end of the rainbow.
That is to say, it’s virtually impossible.
Well for most inexperienced investors, this is true.
You see…embracing a strategy to manufacture instant equity can be a risky move and many people lose more money than they make when trying to generate an instant profit.
But speaking from experience, both personal and from helping many clients at Metropole, I can confirm that it’s certainly not impossible to achieve virtually instant equity from a property.
There are a variety of ways it can be accomplished and I’m going to introduce you to just a few of the strategies that have worked for our clients:
1. Buying the worst house in the best street
In real estate, it’s all about location.
If you can peg down a dilapidated house in a million-dollar area, then you’ve potentially uncovered an equity goldmine.
There is tremendous potential for profit if you refurbish the property to match the value of the street it’s on.
For example, if you bought a property for $950,000 in a sought-after area and spent $300,000 renovating it to a premium finish, it’s likely to be worth say $1.5million, and you’ll have “manufactured” an instant $250,000 equity.
While renovations of that magnitude are usually structural, require council permits and are time-consuming, if you’ve done the homework and it’s a sound opportunity, the financial reward is definitely worth the effort.
2. Using the power of a buyer’s agent
Far from being an added expense to property purchasing, buyer’s agents often cover their fee and more by negotiating a better deal than you could on your own.
The money they save you is equity in your hand.
Using a buyer’s agent is becoming increasingly popular as many property purchasers are realising just how valuable they are.
Just make sure that any buyer’s agent you employ has a depth of experience in the market you are buying in, and has a good track record of gaining equity for other clients first.
3. Finding properties that must sell fast
Unfortunately, people sometimes find themselves in a situation where selling a home becomes an immediate need.
Usually those reasons are less than pleasant – divorce, death, debt or an immediate move required by other challenging life circumstances.
What that does mean though, is that the sellers are motivated to sell quickly and will accept a lower price if there aren’t any better offers on the table.
You can find motivated sellers by quizzing agents at open-for-inspections (you’d be amazed how many will give away information like this), or by using a buyer’s agent.
This is another time that a buyer’s agents can help you.
I know the team at Metropole are in favourites on the smart phones of many of the agents we work with and are the first to find out about those quick “off market sales.
4. Modernising an apartment to the market’s tastes
I’m using the term ‘modernisation’ instead of ‘renovation’ because this point is different to the one made above about renovating for instant equity.
This is about taking an established apartment and cosmetically tweaking it with a smallish budget to increase its value, which is one of the most popular ways to create equity in a property.
Sometimes a little tidying up, a coat of paint and a few new fixtures and fittings are enough to make a property feel new, or it might need an investment of $50,000 dollars to install a new kitchen, bathroom, carpets and air conditioning.
If you only make the changes that will add value to the property with the smallest budget possible (without skimping on quality), you’ll add instant equity, and also receive a higher rental return and depreciation allowance.
5. Property Development
O.K, buying an old home past its use-by date and building 2 townhouses or a duplex is not really manufacturing “instant” equity – the process of property development takes time.
Of course property development isn’t for everyone, but as our markets slow down this year, if history repeats itself many investors will consider getting involved in property development to manufacture equity and force capital growth at a time when the market won’t do the heavy lifting.
However, property development is not for everyone and should be approached with a solid understanding of the risks involved – including large debts, budget blowouts and uncertain markets one or two years down the track when the project is completed.
Even though I’ve referred to ‘instant’ equity throughout this article, it’s important to remember that no profit happens overnight.
It requires work and planning, and sometimes a little bit of risk appetite to take that leap of faith.
But it doesn’t need to take years to see equity in your properties, as for the investor willing to put in the time and effort, equity can be found faster than you think.
Want some help?
If you’d like to explore how some if these strategies could work for you, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.