Property investors generally make money in just 3 basic ways. Knowing these methods will give you a high level understanding of how to make money through property investing.
People invest in property in a variety of different ways. There’s subdivision, development, buy and hold, positive cash flow, units, houses, town houses, investing for capital growth, dual occupancy. There’s so many different ways to invest in property and people invest for all sorts of reasons. But, generally, when you boil it down, there are 3 ways property investors make money.
So I’m going to outline these 3 ways in that lesson to give you a high understanding of how property investors make money and then we’ll go into more detail in future lessons.
The 3 ways property investors make money is capital growth, positive cash flow and tax benefits. You can actually make money in all 3 ways. You can make money in just 2 ways. Or, you can make money in just 1 way. But, as you’ll see overtime, every different investment strategy tends to make money in one of these 3 ways, at least. So let’s go over them quickly.
Capital growth, which we’ll talk about in the next lesson, is basically the rise in value of something – In this case, your property. So, you buy it for a certain price. It goes up in value and then you re-sell it or your borrow against that increase price to access the money. So, you gain value that way and make a profit.
Positive cash flow is an excess of income compared to expenses. So, you buy a property and it costs you a certain amount per month to own that property and if you make more than that amount, you can pay all those expenses using the rent and you’ve got money left over which is profit.
And then, tax benefits through depreciation. You can actually save tax and make money as a result. This does get a bit complicated, so I will do a full episode on depreciation. I’ll probably do a full series on that in the future. But, you can actually invest in property just for the tax benefits it gets. And because of those tax benefits, you can offset more money than the property costs you in tax, effectively making money on paper.
So, they’re the 3 ways that people generally make money in property. There’s so many different strategies, as I said, but they all tend to revolve around making money in one of these 3 ways. As you’ll see, as we get further into future courses and we look at all these different strategies, you can come back and see. Did I make money through capital growth, positive cash flow or through tax benefits?
To keep learning, visit onproperty.com.au for more lessons or click a video below to continue. And while you’re at it, why not check out our membership where we list new positive cash flow properties everyday? Go to onproperty.com.au to see the details.