Managing the Risks of Property Investment

Managing the Risks of Property Investment

Property investment doesn’t always follow a predictable path, and there are many twists and turns that may occur along the way.

It is critical to understand that when investing there is always going to be risk involved, and it can stem from an assortment of unexpected areas. You could be faced with bad tenants who cause damage to the property or even basic maintenance that may cost more than you had envisaged.

Whether you’re at the initial stage of thinking about investing in property or have already purchased, there are vital points of which to be mindful.

We spoke with Alex Ah Key from Peter Blackshaw’s Queanbeyan & Jerrabomberra office who had the following advice for you to consider with property investment.

1.The financial consequences

Firstly, don’t overstretch your budget.  Ensure you can afford to cover the mortgage even in times of potential vacancy. It’s important to critically assess your ability to enact a financial contingency back up plan that won’t burden you if the property sits empty for a while due to circumstances beyond your control. You should also factor in whether you have the financial capacity to cope for any necessary maintenance that must be addressed straight away.

When you have decided upon the amount that you can afford, you should then consider your best investment opportunity. Your budget may only allow for a fairly basic property that requires some work, or you could purchase a top-notch apartment.

It’s also critical to consider the area to invest in, because different locations will result in different financial consequences. For instance, if investing near to the city centre, it will cost more but the rent is also likely to be higher. Plus, it might generally attract a younger demographic of renter compared to a property further out in the suburbs – which may appeal more to established family units. Each investment property will attract a demographic suited to the property in that area and within that, of course attracts different risks.

2.Pre-rental

Reduce risk by having all your bases covered before placing your property on the rental market. Make sure that the property is safe for tenants and has a record that demonstrates there is little likelihood of future problems. This covers a variety of things; from getting a detailed building inspection to the installation of smoke alarms. By addressing the potential of any issues prior to leasing your investment property, you will be fulfilling your duty of care as the landlord.

Alex recommends consulting one of the companies that provide risk mitigation report services so that you will be aware of any possible risks and how much each one might cost to rectify.

3.During Tenancy

The key to avoiding sticky situations is to be proactive, not reactive. This is particularly important during the time of tenancy. Although most tenants are careful (it is after all, their home even if it’s temporary), accidents do happen. This is why Alex’s first recommendation after purchase is to take out landlord insurance and protection policies. These will aid in defending you against occurrences such as:

  • Accidental loss or damage
  • Deliberate damage
  • Flood or storm damage
  • Fire or explosion
  • Theft or damage due to theft
  • Pet damage
  • Scorching
  • Earthquake
  • Glass breakage
  • Riot or civil commotion
  • Defaulting tenant

4.Property management

Alex advises employing a professional property manager instead of taking on the responsibility yourself. This not only ensures that your property is regularly monitored, but they can even predict certain situations before they occur.  For instance, something as simple as paint bubbling in a hallway that backs onto a bathroom would indicate to them that the shower is leaking and that it needs to be fixed before further damage progresses.

It’s also an unfortunate reality that if your tenancy comes to the point where a tenant needs to be evicted, the process can be protracted and there are many legal obstacles that need to be carefully considered and navigated. For this reason, an experienced property manager is invaluable since they will ensure sure that each legal requirement is completed efficiently.

Above all, Alex reminds you that while property investment is a long-term game and there are many factors to take into consideration, it can be very profitable for a savvy investor that has done their research.

Peter Blackshaw Real Estate takes great pride in providing expert advice about all the risk management strategies available to you, so if you’d like more tips on property investment, contact your local office today.

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