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Buying a home to sell versus buying a home to rent

When it comes to directly investing in property, after you’ve figured out how much you can borrow, the next step is finding out how you want to invest. Buying a property to renovate and sell, or buying a property to rent out.

So how do you know which one to go for?

How much of a commitment are you after?How much of a commitment are you after?

The sweat of your brow

Buying a home to renovate and then sell on (or “flipping”) is all about sweat equity – that is, relying on increased value through renovation rather than through capital gains. If you choose this method, it can net you some excellent returns within a short time, but you have to be careful with the kind of property that you buy.

Firstly, you’ll want to find a place that is below market value. Depending on your level of commitment (and skill level), this could range from a dilapidated ruin that has some potential, to an older Aussie building that just needs a modern spruce-up. Big jobs could mean calling in for professional repairs, so ensure that you know what you’re getting yourself into before making that purchase.

Other options also include subdividing a single property into two. Again, this requires adequate research and professional help, so ensure that you factor this into loan borrowing calculation that you do.

The long game

Flexibility was one of the key reasons for renting.

Because you likely want to get this out to lease as soon as possible, you’ll want nothing to do with run down houses. Renovations cost money, it would be better to pay this up front in the initial price and start earning rental income as soon as possible. A good, solid foundation means that you will have to do less maintenance over the lifetime of your property.

The location is far more of a priority. A McCrindle Renter of the Future survey found that flexibility was one of the key reasons for renting: You’ll want to have amenities nearby so that your tenants don’t just up and leave for somewhere more accessible for them. Long-term growth also gives you the ability to sell later on and still see profits due to capital gains.

When it comes down to brass tacks, buying to sell and buying to rent comes down to one thing – getting the right information. Whether you’re after advice on how much you can spend on a fixer-upperor how much rental income you can expect to offset against your mortgage repayments, it’s important to do your research.

Before anything, start off by speaking to a mortgage broking expert and consulting our Property IQ service here at Premium Mortgage Group.

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