Buying Investment property Is Not Free of Risk
Investment properties can help you create a crazily strong portfolio for yourself. It can make you a millionaire or at any rate, give you a healthy positive cash flow. If you are really competent, it can give you rather ambitious ‘Buffet-esque’ dreams, too. But the downside needs just as much introspection. It is always important to conduct a risk-benefit analysis before getting into property investment.
What if interest rates go up?
For something like a year, cash rates are not likely to rise but once they do and go up to, say, 5%, they will take interest rates to nearly 7%. This will mean stiffer mortgage commitments and will make repayment jobs very difficult for investors….of course, if you haven’t deliberately negatively geared your property for want of capital gains.
What if you have to sell at a short notice?
Buying a property at the right price is a tough job. Selling it at the right price is even tougher. If you face liquidity issues and wish to settle the property in a flash, you may have to do with a considerably lower buyer’s bid (and worse still, settle for it).
What if vacancy rates are high?
If your property happens to be in a neighbourhood where the vacancy rates are high, you may have to keep your nest tenant-less. If lucky, you may get tenants but at a bargained rental rate. Cramped rental yield will freeze your positive cash flow.
What if you fail to conduct sufficient research?
If your research is not adequate and you haven’t sought help of professionals, you might get into the trap of buying a wrong property. Such a piece may not be good for capital growth. It may physically be where the zoning restrictions are. In fact, on a later day, you may just come across easements and council denials which were not mentioned in a deed. Unless you conduct pre-settlement inspections and make your conveyancer go though the deed, this lack of research can come back to bite you.
Keeping lofty ambitions is a good thing…a great thing in fact but it also reduces your margin for error. Yes, if you put most of your steps right, I don’t think there is an asset class I can recommend you more than the properties.
A seasoned buyer’s agent can be your handy companion because he puts emotions behind and uses only his rationale and expertise to find you a suitable investment property. If you are looking for one, feel free to contact me.