All wealth creation strategies come with some risk; the bigger the potential reward, the bigger the risk. Identifying your risk tolerance and successfully managing risks can lead to a profitable future. Jumping in to property investing without an investment plan or professional advice can prove to be costly.
Don’t let the risks restrict you from investing in property. Rather, learn how to manage the risks and generate rewards. Many risks can be managed through careful planning and contingency plans. The following covers other strategies to reduce risk when investing in property.
Choose a Property in High Demand
Look for a property that appeals to a wide assortment of tenants. Consider location, proximity to transport, shopping centres, conveniences etc. Selecting the right property reduces the risk of vacancies; helping your cash flow. Performing routine maintenance and keeping the property looking good also appeals to tenants.
Minimise “Undesirable Elements”
Everyone has heard about tenants failing to pay their rents for months and sometimes even leaving the landlord in the lurch taking off without paying bills / leaving costly damage behind. A professional property manager can help mitigate risks by screening potential tenants, regularly inspecting your property and keeping in touch with your tenants.
Get your Property as well as Yourself Insured
You never know when unfortunate circumstances will crop up. The loss of a job or accident could have a major impact on your cash flow. You must have sufficient insurance not only for your property, but for yourself as well. It’s also a good option to keep a line of credit for your loan, providing a funding reserve should the unexpected happen.
Be Prepared for Rising Interest Rates
Those new to property investing may not have faced rising interest rates yet; enjoying the historically low rates. Smart investors always factor in higher interest rates when considering affordability and return on investment. If you can only just afford to invest at the current low rates; you need to consider your contingency plans for any upward movement of rates, particularly a few percentage points. You may also seek guidance from your mortgage broker or lending institution. Perhaps fixing all or part of your loan, or having an interest only loan are suitable strategies for your situation.
Be Ready for Unavoidable Maintenance Issues
Generally speaking, the older the property; the more maintenance requirements. You may not always be able to see things like plumbing, wiring etc and even the most beautiful presented property can have hidden issues. Attending to routine maintenance will help minimise surprises however you should always attend promptly to any repair issues should they arise. This will help keep your property in top shape and keep tenants happy.
Become a Smart Investor
Educating yourself and partnering with experts will provide a great foundation for you to be a successful investor. Understanding the ‘Property Cycle’ and knowing when the best times to invest are, or more specifically when not to invest (at the market peak) is also an important factor.
Investing in ‘bricks and mortar’ is seen by many as an effective wealth creation strategy. To be successful, you must have an appreciation for the associated risks and take necessary actions to mitigate them.