When done right, property investment can be lucrative and give the investor financial security in the long term.
However, there are many reasons why property may not be right for you and these should be carefully considered before making your first investment.
Prices don’t always go up
There is a myth that property prices always go up, but if you get the timing wrong and are forced to sell you may be looking at a loss – or worse still, can’t afford to sell. Leverage can magnify your gains but conversely magnify your losses too.
Everyone assumes your rich
Investment property owners get treated poorly. The government thinks you are rich, tenants thinks you are rich, and the magistrates think you are rich. A fact that not everyone appreciated is that the investor will live on less in the short term for delayed gratification and gains in the long term.
It’s a long-term play – will you have the patience?
Entries and exits of property are too expensive to flip, or turnaround, in the short term. Taxes are double for a sale in the first year. With patience, property investing is hard to get wrong. Look through a telescope, not a microscope.
Mistakes are expensive – is your money better off in the bank?
Purchase mistakes, renovation mistakes, and selling mistakes can mean the loss of thousands of dollars. Sadly, I’ve recently been made aware of a property sale for $310k, when it was purchased for $440k less than two years ago.
As an investor, you need buffers and contingency for when things go wrong. When building your portfolio, it is important to factor in the unknown – death, divorce, loss of job, the economy market and the government.
It will be a struggle
The first seven years are the worst; debt is at its highest, cashflow at its weakest and newbies make mistakes. Seek a mentor to keep you on track – someone who has been there, done that.
Can you afford to hold it?
If you hold your property for 10 years you will most like have significant gains, but will you be able to hold on that long?
Property can be illiquid
Property sales are never quick. But some you can’t give them away for the lack of reasons to live there. If it is a nice place to live, generally it will be a good investment.
You need to maintain property
Have you budgeted for items breaking or needing replacement? This will happen, without doubt. While vacancy is the biggest enemy of the investor, maintenance and repair is the biggest bug bear. Have a maintenance budget and be proactive to remain relevant.
You may not like the way tenants treat your property
You may be the most house-proud person, but 9/10 tenants are not going to care for your property like you do. Think of a rental car – people drive them far differently to the one they own. If this will keep you up at night, perhaps look to alternatives. This applies to gardens most of all.
My name is Shannon Davis and, as a property investor and CEO of Image Property, I have seen every success and failure known when it comes to property investing. Treat your investments as a business and you will increase your chances of success.