Renovating is addictive! It is easy to get sucked into the vortex of your current project with tunnel vision, making it difficult to look toward the future. As a result, I have seen many people spend a large portion of their prime years trying to build up a portfolio so they can give up their day jobs, with very little success.
They lacked a future-proofing strategy. I don’t want you to find yourself in the same boat. So, I will tell you how you can use renovating to build high equity and a high cash flow portfolio – fast. Don’t forget to get the appropriate advice from professionals such as your financial planner or accountant familiar with your circumstances. You want to be able to minimise your risk and maximise your profit.
The goal is to start earning passive income, which means you must develop a long-term view of how renovating can help you achieve this. I spent many years being addicted to my projects without being strategic about my renovation business. I eventually realised I wasn’t getting to where I wanted to go. Over time I have learned lots of strategies to help me build wealth.
The Pitfalls Of Renovating And Holding A Property
A common course of action for someone who has decided to start building wealth is to purchase a property and renovate it with the view to holding it. The problem with this model is it almost always starts negatively geared. Cash flow is poor because you have had to pay the buying and renovation costs, and then you have to hold the property until the market goes up.
If it is an old property, you will have to attend to the maintenance of it; no matter how well you renovated it, your maintenance is still quite high. A new property doesn’t set you up any better. You will have to pay a higher price for it, and it takes the market a while to catch up, sometimes as long as a decade.
Make Your Next Investment Property A Micro Development
The best property investment strategy to build wealth is positively geared for high equity and high cash flow; it is low maintenance and high depreciation – the Nirvana of investment properties.
The strategy that ticks all the boxes is a micro development. Renovating to build a high equity, high cash flow portfolio using this method involves nine steps:
- Buying a renovation project house on a big enough block so you can subdivide.
- Subdividing the block into two to three new properties.
- Renovating the house.
- Selling the renovated house to pay down the loan.
- Finance the building of one or two new properties, depending on the size of the land and the approvals.
- Build the new properties.
- Hold them and rent them out.
- Refinance to get your deposit back.
- Rinse and repeat.
The Benefits Of A Micro Development Wealth Building Strategy
Using the micro development strategy, you can start renovating to build a high equity, high cash flow portfolio. It normally takes between a year and eighteen months to complete a project like this. The benefits include:
- Good cash flow
- Greater profit
- Pay less tax and commission
- Low maintenance
- High depreciation
The Avocado Smash Joint Venture Strategy To Build Your Portfolio
We are currently doing an avocado smash joint venture with our third child. We have tacked our avocado smash strategy onto the micro development strategy. The plan is to renovate and sell the house and then build two new properties on the back. We will each keep one to rent out. It is a fantastic, mutually beneficial plan.
This is a great strategy to start renovating to build your high equity, high cash flow portfolio because you can use domestic builders and residential borrowing. Once you start doing more properties, you will have to look at commercial borrowing, which is not as user-friendly.
The quality of your team will determine the success of your outcome. In this case, a town planner is a useful person to have on your team to help you navigate the due diligence of the development side of your project. He will ensure you have the appropriate stormwater drainage and the correct services and help you avoid problems such as building over the sewer. A good accountant is also essential for helping you navigate the tax.
Using The Right Business Strategy Can Help You Start Renovating To Build A High Equity, High Cash Flow Portfolio
As with everything in life, there is a right way and a wrong way of building your property portfolio to maximise your profit and minimise your risk. Buying, renovating and holding a property is the least effective approach. Using a micro development strategy of buying a property, subdividing the block, renovating and selling the existing house and then building one or two new properties allows you to ensure good cash flow and increase your profit.
If you want to meet up with a group of savvy renovators, come over and join the She Renovates Facebook group. It is full of (mostly) women working hard to make their dreams a reality, making a great income through renovating for profit.