Thinking about purchasing an investment property? It could be a daunting experience at first to put your savings into a property. The Australian property market has seen tremendous growth in the past three decades and the trend is likely to continue as the underlying conditions improve. Therefore, it’s better to be in the property game than sitting on the fence and missing out on this growth opportunity.
Like any other investment, property market also comes with significant financial risks, some of which you can attempt to mitigate.
Risk comes from not knowing what you’re doing.
Warren Buffett
Research. Research. Research.
Research encompasses all aspects of your investment: the market, the property, suburb profile, council plans, your finances and the economy. There is no such thing as too much research when it comes to a property decision. As you become familiar with the property market, you’ll start differentiating risky decision from a non-risky one. There’re a lot of free resources and information available that could help you boost your property knowledge.
Manage your Cashflow.
85% of the things we worry about never happened
Even the best of the investment plans and forecasts don’t follow through 100% in the real world. There may be unforeseen circumstances with the tenants, property market or your financial position during the lifecycle of your property investment. Be prepared to tackle them, most of the time they’ll be temporary in nature. Stay positive!
I recently read an article which said 85% of the things we worry about never happened. This statement is so relevant in this instance. Don’t let your negative thoughts hold you back. If you’re worried about tenants not paying the rent or you losing you job, plan ahead and set up a safety net.
Here is a hypothetical example of an investment property. Note: figures are approximate. Purchase Price $700,000. Costs: $26,100, Rental Income $20,800. Shortfall -$5,300/year or -$442/month.
To stay cash neutral, you’ll need at least $442 cash every month but if you’re worries about possible situations that may affect your plan, list them and use that scenario as safety net.
Find a good property manager and let them to do their job
A good property manager is like a service partner. Look for someone who can provide you an advice from selecting the tenants to managing complex matters on your behalf. I’ve been fortunate enough to know a few good property managers, who have the real passion to help landlords and also maintain strong relationships with tenants.
Take a long-term view and manage your risks
An investment in property is a long-term game and you should not expect immediate returns. On average, it takes about five to seven years to achieve sizeable returns.
