What about “passive” renovations and developments

We find that in general property renovations and property developments (residential or commercial) are more “active” investment strategies that involve higher risks, and as such our investment approach and strategy is not primarily dependent on these.

By buying investments strategically, below market value and with good timing and management of interest rates, we find we can generate good returns, and with lower risk and lower effort involved, ie. more passively.

However, simple cosmetic renovations are not too difficult to do, and could still be done with the help of a project manager or by the investor themselves if they have the time, skills and expertise to do so; and only if doing so will add value to the investment without over-capitalising.

If you are skilled in a particular trade or have some experience in the building industry, then you can certainly use these skills to your advantage in doing a renovation or even a development.

Compared to renovations, property development generally has even more risks that need to be managed, and generally doesn’t really meet our Primary Investment Objective and Investment Criteria.

Even with the use of a project manager, we find there are so many things that could potentially go wrong and so many people involved in doing a development (all of whom need to be paid), that to generate a worthwhile return for the level of risks involved and level of “active” management required to oversee the development to completion is not easy at all.

Again, if you have specific skills and expertise in building, eg. you are a tradesman or builder yourself, then don’t let our comments stop you, as you will have an advantage over other people such that you may be able to reduce some of the many risks inherent in a property development.

Having said all of this, the ability to add value to property through renovation or development, as well as other strategies such as changing zoning and/or permitted use, leads us to one key advantage that this asset class has over many others, ie. control.

With property, although it is a great “passive” investment, it also gives you the ability to exert significant control over it by actively adding value to it using the above strategies, and therefore could potentially improve your long-term investment returns dramatically.

Of course you can always buy a property with the potential for future renovation and/or development and just hold on to it passively up until a time that you either feel more comfortable doing this, or are in a better financial position to take on the additional risks in implementing these strategies.

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