Reducing the Risk of Property Investment

Reducing the Risk of Property Investment

Australia’s property market has proven to be resilient in the face of global uncertainty. Despite shaky economic fundamentals across continents, Australia’s property market remains robust. In 2015, housing prices in Sydney rose in value considerably.

Real estate is generally considered a “safe” investment because there will always be a strong fundamental demand for shelter. Second, even if the property contracts in value, its physical assets will remain intact.

But property is an asset that capitalizes on the intrinsic value of time. In order to maximize its value, you may have to wait eight to 10 years down the road. By then conditions in business and in your life could change. These could present very real and serious risks.

So how do you mitigate the potential risks on property investment?

Research on the Area of Interest.

You should always conduct research before making a decision in every investment opportunity.

For real estate, this means identifying factors that support future capital growth. These factors include:

• Growth of commercial development projects.
• Increasing population or migration.
• Sound economic fundamentals: wage rates, interest rates, average household income.
• Land supply shortages.
• Growth of infrastructure: utilities, communication and disaster control measures.

The existence of any of these factors can lend pressure on property prices.

Study Your Financing Plan Thoroughly.

Banks make it seem like an easy decision to make but acquiring a home loan package that best suits your needs can be a tricky proposition.

According to a report by RateCity, interest rates on investment homes have a variance of 2.17 percentage points or in monetary terms, a borrower would realize a difference of $533 per month.

Take the time to study the home loan packages offered by banks. You have to factor in your day-to-day commitments and other obligations. The repercussions get higher if you have family and dependents. That’s why Finding a good Mortgage broker is crucial to investment success.

Qualify Your Tenant.

Leasing your property is always a great option to capitalize on your investment. You are assured of monthly income the value of which corresponds with the rental property market.

But what if your tenant turns out to be undesirable? We’ve heard horror stories of tenants who default on their arrears and those who leave the premises in shambles. Leasing your property yourself may expose you to risks of unpaid rent and high maintenance costs.

If you plan to lease your property, contract the services of an experienced property manager. He or she can work to make sure your property remains an active, cash- generating asset. An experienced property manager also has the ability and foresight to qualify interested parties before they become tenants.

Have Contingency Plans.

Investments, like life itself, can be unpredictable. Even though real estate investing is generally considered a safe haven for your money, the industry goes through cycles of ups and downs.

You should always have contingency measures ready in case market conditions change against your favor.

If you have an outstanding home loan and your stream of income gets compromised because of unfavorable business conditions, you may have to re-think your options for maintaining your home.

You could re-negotiate terms and pricing with your bank, look for a favorable loan take-out arrangement with another bank or test the property market.

The bottom-line is when you have property investment you should always be ready for the uncertainties that accompany an asset that involves the element of time.

Like with anything it’s a good idea to consult a professional to assist with investing in general. Its crucial to your success that you build a solid team of experts in their field such as a mortgage broker, specialist real estate tax accountant, financial planner, Solicitor and or conveyancer as well as a good buyers agent.