There are many people who rate ‘fear’ as the reason why they don’t invest in property. Here are the most common responses when asked just what they are most fearful of:
1. Tenant wrecking the property
2. No tenant for a period of time
3. Interest rates rising
4. Losing my job
5. Life circumstance changes
6. Worried about what others think (about my investment choice)
7. Failing to achieve my investment goals
Any one of these circumstances could significantly impact a person’s life, there’s no doubt about that!
In reality, property investors face the chance of at least one or maybe several of these situations occurring during their investment journey. The one thing that makes the difference when investing is to ensure that you have a mentor to assist you. A mentor is someone who has walked the journey and can advise on how to manage through the great times and the less than great times of holding property and building a portfolio.
So how does an experienced property investor cover off on those seven circumstances?
Firstly, it is an absolute “must” to have landlord insurance on an investment property. This covers for malicious damage as well as loss of rent. In the event that the less than desirable tenant damages the property or takes off without paying their rent, you can claim on insurance.
If there is a vacancy period that extends to weeks, it’s essential to get some strategies from your mentor. It might mean dropping the rent for the first 3 months to attract a tenant with the condition that they will pay market rent after the first 3 months. There are several strategies that will work but importantly, you need assistance at this point or it will cost you dearly.
When interest rates move upwards, there’s usually a point where people panic but those who are smart investors, they have already factored in a rate rise or two in their planning. While interest rates remain at historically low levels, it is wise to plan ahead and always make your property acquisitions affordable so that you can hold the portfolio for the long term.
Losing an income by job loss, prolonged illness or maternity leave can have a profound impact and it is imperative to have a financial buffer in place for such an unexpected event. It always make sense for property investors to have themselves financially covered in the event of a change of circumstance.
Some people are very concerned about what ‘others’ think of their property investment goals. My suggestion would be to keep your investment decisions to yourself if you feel that others will give a negative opinion regarding your choices. It’s interesting that in the baby boomer generation, it was incredibly important for them to achieve the “Great Australian Dream” of owning their own home. Most boomers have done exactly that and have now encouraged their children to do the same but there’s one huge problem – to enter the property market today in Sydney, with median prices of around one million dollars, a young couple need a 20% deposit and most struggle to achieve it.
Many young people have decided to turn that idea completely on it’s head and rent where they really want to live and buy investment properties, sometimes right around Australia, as a means of getting into the property market. This strategy actually makes a lot of sense as they can afford to buy and hold more property, using equity from each to build a property portfolio as well as having the benefit of tax deductibility.
One thing is for sure, if you don’t make a start towards having an investment strategy and working towards your investment goals, you will most certainly fail to achieve them.