6 risks of property investment you need to be aware of
Property investment is widely considered one of the 'safer' forms of money-making ventures, according to the Australian Securities and Investments Commission.
The gains in recent times have been near ludicrous
Of course, this doesn't mean it just provides slow and steady profits, as the gains in recent times have been near ludicrous. For example, the Australian Bureau of Statistics affirms that property values in Sydney catapulted up 18.9 per cent in just the 12 months to June 2015.
The Pain and Gain report from CoreLogic RP Data revealed that over the June 2015 quarter, 90.9 per cent of homes sold at a profit, with a staggering 30.8 per cent selling for more than double their previous purchase price.
However, property investment is not without risk, as the 9.1 per cent who sold their homes at a loss can attest. Here are some of the dangers of property investment, and how using competent buyers' agents and property managers can help mitigate them:
1. Vacant periods are costly
It's vital that once you've bought your property you find tenants as soon as possible. They are your secondary source of income, and without them you will have to pay your loan and upkeep expenses out of your own pocket.
Figures from SQM Research show that vacancy rates in Sydney and Melbourne are relatively low (1.8 and 2.3 per cent respectively), but this doesn't take into account the lengths of tenure – your residents could give you their notice at any time, or even just disappear altogether, leaving you to clean up the mess.
Investment property managers have access to a database of previously vetted prospective tenants to ensure you get reliable and quality people in your home.
2. You could choose dodgy tenants
Your mother probably drilled it into your head when you were a child: Don't judge a book by its cover. On first impressions, a person may appear to be the perfect tenant, when really they're an impending headache for your property investment.
According to Consumer Affairs Victoria, there are a number of hoops you will need to jump through if you would like to evict a tenant, which can take time. Over this period, you will be stuck with an errant tenant holding your property at ransom.
On top of being able to interview potential tenants to uncover any discrepancies, your property agent will be able to view renters that have been 'blacklisted' in the past, helping you make an informed decision. Remember, mothers are always right!
3. Maintenance and repairs can be expensive
While an older property may have a slightly less intimidating price tag than a newer piece of real estate, you need to balance that with the likelihood a home with additional history will probably be more costly to maintain.
An experienced buyers' agent will be able to scour the market on your behalf, ultimately sourcing dependable, solid and structurally sound properties that meet your requirements and financial standing. This will help to reduce the costs of upkeep, ensuring your investment remains profitable.
4. You could overpay
Paying far too much for a property, and consequently slashing your profits, is relatively common, especially among first-time investors. The main culprit? Your uncontrollable emotions!
Becoming attached to a property is dangerous, as it can often result in you throwing your research and due diligence out the window after deciding that you will do and pay anything to get your hands on those keys.
This is when having a property buyers' agent on your side can be invaluable. They will act as your third-party voice of reason, telling you when to walk away and when to commit yourself.
5. There is no guarantee you will make capital gains
Despite the sheer bulk of homes in Sydney and Melbourne providing profits for their happy owners, there is no guarantee that yours will. You could potentially purchase a lemon and find yourself part of the aforementioned 9.1 per cent, who, according to CoreLogic RP Data, lost on average of around $65,000 per home.
Buyers' agents from larger agencies will often maintain vast networks of real estate professionals, which means they can provide you with access to private house sales before the general public. Given the absence of competition, this can result in you purchasing a quality home below its market value, significantly increasing your investment's growth potential.
6. You could be sued for negligence
If you're found to be negligent, you could be sued and taken to the tribunal
In an effort to level the playing field, state governments have allocated a number of rights for tenants. The Tenants Union of NSW states that this means you need to stay on your toes with the day-to-day running of the property, as if you're found to be negligent, you could be sued and taken to the tribunal.
An effective property manager will be able to take care of everything for you, including collecting rent, conducting regular inspections, undertaking necessary maintenance and repairs and even offering advice on strategic actions such as renovations or selling.
While there are risks to property investment, you can rest assured that having a buyers' agent and property manager by your side can make the process much simpler – provided you choose wisely of course!