What could possibly go wrong?
8th March, 2022
Even In the shadow of this never-ending pandemic and the current threat of global conflicts, Australia’s real estate market has continued to puff away on an uphill trajectory like the little engine that could.
While crypto and NFTs (still not too sure what those are) may be the current investment fad of the day, there is no denying that we Australians love our real estate.
While the pandemic has posed challenges and changes to the way we live, work and interact it seems investing in real estate has not changed as the way everyday Australians strive for our financial freedom.
While these may be uncertain times if you are in the fortunate position to be considering purchasing an investment property; it pays to ask yourself what could possibly go wrong?
I am all about planning, so let’s look at a few of the common pitfalls now, to avoid headaches later down the track.
A vacancy period of course means a loss in rental income between tenancies. This can happen for a couple of reasons but can be avoided if your property is managed correctly. One reason for an extended vacancy period can be oversupply. If there is a decreased demand for a certain type of property you may be waiting a long time for a new tenant to come along. For example, if you owned an apartment in Melbourne in one of the mega complexes that were built to house international students you would have found yourself in strife in the last couple of years.
It pays to speak to an agent before purchasing an investment property to better get an idea of what tenants are looking for and where. There are certain properties in locations that are always desirable and leasing them is not reliant on one factor alone like the above student apartments.
Another cause of a long vacancy period is the asking price is too high. You may have overextended yourself and simply can’t afford to take anything less or, you have been ill-advised on what kind of rent was achievable when you purchased it.
Again, I recommend speaking to a rental agent before you purchase an investment property. Make sure they give you an appraisal with market analysis and comparable properties, so you know what is achievable. Don’t just take the word of the person selling it.
When I was a property manager, I found that some landlords seemed resentful or even surprised when they had to do property maintenance.
An investment property is not a set and forget investment, it will require regular maintenance and upkeep.
Maintenance shouldn’t be something you fear, it protects the value of your investment while also being another deductible come tax time.
Even the best managed properties will require maintenance, a new hot water system, a collapsed fence or in the case of strata property, a special levy can come as a shock if you don’t have any money in your maintenance fund.
I like to put aside one month’s rent as an emergency/maintenance fund, so I don’t need to worry should things/problems arise.
We have all seen and heard the horror stories of the hoarders, the tenants that just won’t leave, the devastated retirees whose investment property has been trashed. The nightly news loves to play these worst-case scenarios.
While these things can happen, tenancy issues are usually only minor. If you have a well-maintained property that is managed by a good property manager, you shouldn’t have much to worry about.
If on the odd chance you find yourself with one of those nightmare tenants you hear about, an experienced property manager will be able to handle any difficult situation and mitigate any losses before the news cameras start rolling.
The bubble bursts
What goes up must come down. All bubbles burst.
If you have worked in real estate for as long as I have then you would have heard sayings like these more times than you care to count. If the above phrases tend to scare you then I believe that you have failed to prepare, or you have missed an important step along the way. Bubbles will affect those that have taken an unnecessary risk or have not invested wisely. I have always said that owning an investment property is like having a small business. Before going into business, you need to be educated and have the right people working for and with you. Financial planners, accountants, insurance and mortgage brokers and property managers should all be consulted to ensure that your investment is bubble proofed.
The future may be unwritten but as long as people are around, we are going to need somewhere to live. If you are looking to purchase an investment property and would like to take advantage of our free investor support services, please feel free to get in touch.
Written By Ben Broadley