This is the most common investment strategy because it is the easiest. The purpose is to buy a property and hold it to try and achieve one or all three of the following benefits. By gaining ongoing cashflow from the property by renting to a tenant, long term capital gain from the property by having the value increase over time by appreciation, or by paying down the existing debt which allows the equity to accumulate which adds to long term capital gains. (*)
This investment strategy is much like the "Buy & Hold" strategy except renovations are done to the property in order to increase the market value of the property, or to possibly lower the cost of certain expenses of the property. For example, if hardwood floors are installed then the market value of the property may increase as well as how much one can charge a tenant for rent. If a new water heater is installed, it may lower the heating costs thus lowering the monthly expenses for utilities.
This strategy is the most complex of the bunch where the purpose is to buy a property, fix it up to increase its value, refinance your mortgage, and take out the excess equity that you created with the renovation. Another key is to buy the property under market value to increase the excess equity (profit in your pocket). If this property is a rental then you could have also increased the rent with the renovation so that it can pay off the larger mortgage that you refinance. An example to explain this is as follows:
After the renovation your property is now worth $390,000 (estimate after bank assessment) with a mortgage of $240,000 which gives you $130,000 of equity. At this point you refinance (remortgage) the property at its new value ($390,000) so that it is at 20% down ($78,000) over 25 years at 4% interest and you take out $130,000 (equity) - $78,000 (down payment) = $52,000 for a profit of $52,000 - $15,000 (renos) = $37,000 in your pocket. You are also left with $18,000 more equity in your property ($78,000 down vs. original $60,000). (**)
The purpose of this investment strategy is to gain profit quickly. This is done simply by purchasing a property that is below its market value and selling it for either its market value or more to gain a profit.
The focus of this investment strategy is to buy a property, fix it up which will add value to it and then proceed to sell it to gain a profit. There are a few keys to this investment strategy such as buying a property at a good price below market value and being able to manage different people and projects during the renovations.
