Are You Going To Be a Property Investor or Property Trader?
When it comes to building a property portfolio, I often find there is overarching confusion surrounding different types of strategies and actions related to real estate.
What I’m talking about is property investing versus property trading.
Yes, they actually are two completely different things that are separated by contrasting behaviours, attitudes, knowledge, risks and costs.
Let’s break it down into four core categories that you can use to help determine whether you want to be a property investor or property trader.
As a property investor you should be looking to own a property for…ever.
The number one rule for property investing is that once you buy the property, you keep it and own it forever. The goal is to eventually create passive cash flow off the property in the future and build your wealth.
One the other side, a property trader works on a shorter time frame – around 12 to 24 months – to create cash flow. Traders are not really in property, they’re in business.
A property trader is in the market of buying and selling. They buy, they renovate/sub-divide/develop the property, and then they sell it. Their business is to essentially find property and then use it to create income or instant cash.
In reality the cost of an investment property remains quite low. In some cases, particularly for first homeowners, you can borrow up to 97 per cent upfront. Lending is far easier for an investor as the long-term risk is low.
When you’re ready to invest again, you can also use the equity in your first home to help purchase your second property.
However, as a property trader the cost is high – and lending is hard. You’re most likely only able to get a 70 per cent lend, which is stark in comparison to what you can get as an investor. Having a larger amount of cash up front before you start trading is an absolute necessity.
Risk in property investing is often determined by time.
Owning a property for one year has a heightened risk, while owning a property for 20 years means the risk of it not performing is much lower. Simply put, the longer you own a property, the lower the risk.
With a shorter timeframe, property trading carries much higher risk. As a business, the property is basically the product they need to sell – yet they have less time to get it right.
Shorter time frames equal higher risk as traders can’t afford to sit on the property for 10 years and let it ride out until it becomes profitable.
The knowledge to buy an investment property is not complex – it certainly requires a high level of understanding and research to know how to buy the right property at the right time in the right way.
However, in comparison, in order to be a successful property trader, you need an exceptionally high level of knowledge. There are so many factors that your success depends on including profits and margins, business, taxes, builders contracts, buying and selling at the time, agent selling fees, the list goes on.
YOUR END STRATEGY DEPENDS ON YOUR FINANCIAL GOALS
So, are you leaning towards investing or trading?
At the end of the day it depends entirely on your long term financial goals. Property trading requires a tonne of research and high levels of knowledge, but it’s not to say it isn’t a viable option for many savvy Australian’s.
However, if you’re looking for a strategy that is lower risk and will ultimately leave you with passive income that accumulates long-term wealth, then property investing is probably the right move for you.
Want to know more? At Positive Real Estate, we live and breathe property investing. We have coaches, strategists, agents, brokers and MORE who are absolute experts in assisting with robust and clever investment strategies that help people maximise their potential of creating real and long-lasting financial freedom.
Start your journey today. Join our free property investment seminar and learn the most crucial fundamentals of real estate investing – your future self will thank you!
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By Jason Whitton
Group CEO Positive Real Estate