There are a number of reasons why a person may want to invest in property, but they never actually get around to it.
Sometimes we have the best intentions and really, truly want to take action. We do research. We attend the seminars and the courses. We also get educated and learn what’s possible. We also discover the strategies that could make us wealthy and generate an income that matches (or outweighs) our current income in retirement.
And then… sometimes we don’t do anything further.
It could be lack of a deposit, a fear of making the wrong decision and ending up with a dud property, or even a partner who isn’t on the same page and discourages you from investing that stops you from becoming an investment property owner.
These are all common reasons why people don’t invest in real estate, even though the evidence of property as an asset class that grows in value is overwhelmingly positive.
However, there is one primary reason why people don’t take the plunge…
It’s everyone’s ‘biggest fear’ about becoming a landlord.
The biggest fear for many property investors is threefold, and it all relates to tenants:
- Finding a good one in the first place;
- Avoiding vacancies between tenancies; and
- Receiving ongoing cash flow from tenants who actually pay the rent
It makes sense to be thinking about these aspects of becoming a landlord. In fact, it’s prudent.
If you buy a property and the expected rental return is $500 per week, and you have an extended vacancy or a tenant who doesn’t pay the rent – well, $500 a week quickly adds up. It’s understandable why investors get concerned.
So how do you mitigate your property investment risks?
There are some very simple, tried and test strategies for minimising the risk of things happening in the first place when it comes to property.
In the overwhelming majority of cases, tenants do the right thing, and very few don’t pay their rent.
After all, the accommodation they are living in, provided by you as their landlord, is their home.
A good tenant will treat the property as if it is their own, and they’ll grow connected to the home and wish to stay on as long as it suits their needs.
And if you have your property managed by a reputable real estate brand (like LJ Hooker!) your property manager will help you find the right tenant, and help identify risks before they become a major problem for you!
Related post: Stay on track with a good financial plan
Here are 5 ways to minimise your risks?
Getting the right support
Get a proficient, proactive property manager to manage your property – don’t scrimp and get a cheap property manager because you get what you pay for.
A “cheap” property manager who cuts corners, doesn’t conduct thorough background checks and doesn’t communicate clearly will make the prospect of owning an investment property harder, not easier.
Also, don’t even consider self-management! The few dollars you save will never make up for the nightmares you’ll experience. Do you really want your tenant calling you at 11pm on a Sunday night because a water pipe has burst in their bathroom?
Find a good real estate agency and outsource the problem – you won’t regret it.
Tailoring your investment to the ideal tenant
There are three types of tenants in the world:
- Those who choose to rent for lifestyle, who are reasonably comfortable financially and who are living in a rental home because it suits them
- Those who are renting as they save for a deposit to purchase their own home
- Those who are renting because they may live with only 1 or 2 weeks living expenses in the bank – meaning they are always just one small emergency away from being broke
You may choose locations and properties based on the tenant demographic that appeals to you – and suits your risk appetite.
Taking note of supply and demand
Supply and demand are important – and we don’t just mean supply and demand of rental properties.
Perhaps aim to buy in suburbs that are dominated by owner occupiers, as it’s homeowners (not investors) who become emotionally attached to homes – and that can play a bigger role in driving prices up.
Also, you may want to avoid locations where there are many new apartment complexes going up. This can result in a large investment property pool and floods the market with rental stock, which can impact the return on your (older) property.
Buying properties with ‘owner occupier’ appeal.
Perhaps consider buying the type of property that would appeal to owner occupiers – this way, you may experience greater capital growth and the tenants will love the features.
Investment properties should have all of the amenities and features that an owner occupier or quality tenant would desire.
Becoming ‘investment ready’
You shouldn’t invest in property unless you’re ready to take on the full responsibility of doing so. This means having a cash flow buffer in place for a rainy day.
For instance, if there’s an urgent repair that costs $500 to fix, you want to be in a comfortable financial position to be able to accommodate this. If finding $500 in an emergency would put you under financial pressure, then you’re perhaps not ready to become a landlord.
Shifting from small to big thinking
Of course the fears of vacancies and no rent are very normal.
But when people let fears like this get in their way, it’s what can be referred to as “small thinking”.
You can get bogged down in the small, less significant “what ifs” and then focus on the potential problems – rather than being a proactive, big picture person who looks for solutions.
It’s a good thing to consider the potential risks.
But balance this thinking by considering the potential upsides, too!
When you’re investing in a property, it’s smart to think about what type of tenant the property would attract and the risk profile and demand from that market segment.
Whilst this is important, it’s even more important to buy a property than will increase in value over time – this is the type of property that is more likely to increase in rent over time, too.
Meanwhile, your increased equity can help you buy the next property, so you can build a portfolio that sets you up for a wealthy retirement.
Cash flow keeps you in the property game – and capital growth may get you out of the rat race.
A suggested good 1st step when looking at property investing is market research and an honest look at your budget and equity.
Our lending specialists offer a free in person, web based, or phone chat to answer your questions and help you assess your budget and equity. We also offer free property suburb reports to help with your research.
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice. You should always undertake your own independent property research.