Saving to buy a property? Find out how to invest in a property with minimal out of pocket.
Property Investment Tips: Utilise Long Registration Periods
One of the things I love about property investment is the knowledge sharing, all the little property investment tips and tricks you pick up along the way. And today I thought I’d share one of my favourite secrets, something that many people are still unfamiliar with.
The property investment secret is to take advantage of house and land appreciation over a long registration period. It’s a fantastic way to make money with very little expenditure. Here’s how it works:
How a long registration period benefits you
In a shifting property market, developers will take advantage of the increased market demand and sales rate by selling lots off-the-plan, then playing catch up to actually undertake the development. It can often take months to finish that development and for the individual blocks of land to have their titles registered.
For example, if you sign a contract today with ten months until settlement, you’ll most likely pay a 10% deposit on the land. If it’s worth $300,000, your deposit will be $30,000. That’s all you pay over this ten month period until settlement. That’s a low stake for a potentially massive reward.
As a strategic investor, this is a strategy I love. And this tactic has paid dividends for some of our OpenCorp property investor clients too…
Recently, a few of our Melbourne clients bought into property investments with long registrations. Subsequently, they made $50,000-95,000, solely between when they signed and when the land actually settled!
How to offset equity to maximise returns
This is, of course, a fantastic gain from a profit perspective. However, it becomes even more attractive if you’re borrowing this deposit from equity.
Let’s stick with the same example, whereby your deposit is $30,000. Once you factor in an average interest rate of, let’s say, 5% on your equity, you’re looking at roughly $1,500 for the year in interest.
Compare that to the $50,000-95,000 our OpenCorp investor friends made on the land. Suddenly it becomes a really smart strategy. It’s not exactly growth for free but it’s pretty close.
The important thing to remember when you have a block on long settlement is that you’re essentially acquiring the growth part of the property – that being the physical land – at today’s price. And provided you have a fully fixed price contract in place, any delay over this timeframe is bonus money/equity in your pocket.
In an ideal scenario, once the house is finished and you have a tenant, you can get the property revalued and gain enough equity to go towards the deposit and costs for our next investment property.
A common mistake that property investors make is thinking that a property investment only gets going when they get rental income. And with a cash flow focused investment that’s true. But as capital growth investors, we see this as equity before we’ve even had to settle and pay the balance of the deposit and costs.
That’s the beauty of this strategy. Your investment grows while the house is being built. You’ve already made a sound property investment well before you go hunting for tenants and gain rental yield.
If you’d like to speak with a property investment expert about this property investing secret or any other investment enquiry, contact us on 1300 OPEN CORP. Or read similar articles on how to use equity to buy an investment property or 6 strategies to maximise your portfolio.