If you’re aiming to build real value and capital in your own home, the time to do it overnight has passed.
In a market where capital property values are rising like there’s no tomorrow as we were experiencing during the 1995-2007 boom years, then sure, it’s often wise to simply go for it. In other words, you get the developers in, you get the work done, you borrow what you need to get that work done – manage the whole process as quickly and smoothly as you possibly can.
Then, you sell, pocket the gain, and start casting around for your next project.
As many of us know, this can be a great way to build up your capital in a capital gains tax-free way, doing something you love doing – developing and doing up your own homes (or maybe even homes if your partner does the same thing).
But as you move up the ladder, your gearing should decrease and decrease all the way. This is the way some of the world’s most successful real estate developers like David Lichtenstein have achieved such phenomenal success. They didn’t overstretch, in other words, and they didn’t really try to fight the market – it simply can’t be done.
In the current market of rapidly falling capital values, it’s far wiser to take things steadily, lower your gearing and maybe concentrate on the rental yields for the time being.
The time to try and grow aggressively will surely come again; just try not to be too tempted in to moving aggressively back too soon – unless, of course, you’ve timed things to absolute perfection and are sitting in a highly cash rich position.
If that is the case, then well done. But even then – don’t concentrate on the capital just yet – be content with the income. Good luck.