6 hard-featured truths about owning an investment property
It’s a mistake to believe that property investment is risk-free. There is a hazy aspect to this business that could end up costing you a lot of money.
Let’s start with the basics. To me, it’s critical for people to enter the property investment market with their eyes wide open or, in other words, to hope for the best while preparing for the worse.
I see financial investors being perplexed with the land regularly because they make irrational assumptions about what they’ll likely achieve. So, in light of a legitimate concern for preparing you for some of the overlooked and less-talked-about aspects of property investing, here are some of the horrible certainties I’ve learned over the longer term:
1. Positive income property can turn negative just in a blink of an eye
Few property investors who rely on the rental yield from their buildings to fuel their other businesses is at odds. Simply upkeep, is one of the key factors behind this.
It’s fantastic that you’ve found a property that pays you more than it costs you to claim; nevertheless, keep in mind that properties don’t look after themselves.
To throw your positive income in the red, all it takes is one blown-up warm water system or even plumbing.
Especially since many income-generating properties are located in the territory or remote areas with greater cost.
So, what’s the solution? Depending on positive cash flow to manage your investment property is a recipe for disaster. To help manage property emergencies, make sure you have an income cushion in an offset account or line of credit.
2. Newer homes have maintenance costs, as well
Many property “experts” promote buying newer homes, advising that you boost belittling advantages and minimize maintenance costs by doing so. In modern properties, though, I’ve seen owners who have had to spend a lot of money fixing dampening balconies, leaking plumbing and electrical faults. Others must spend a significant amount of money to add dishwashers, roof fans, cooling systems, and other amenities that current tenants have come to anticipate.
So, what’s the solution? This is another reason to maintain an “income support” account, regardless of the age or size of your investment property — it will help ease financial stress if and when these costs arise.
3. Vacancies can be more normal than you’d anticipate
Even in the most secure rental property business sectors, even the most sought-after property types have vacancies. You are not immune to this unfavourable truth, regardless of whether you buy the nicest house in the greatest neighbourhood. There’s a danger that putting resources into an area with a lot of investment homes may increase competition, and you’ll lose renters who can choose a less-priced investment property than yours.
However, as a property investor, you must sooner or later face the reality of a vacancy time.
So, what’s the solution?
During the low-request time, try not to list your property for lease or rent.
I like to schedule my leases such that they are due for renewal in January when more people are moving after the holidays.
4. You may wind up with a bad occupant
Indeed, this isn’t just a possibility – at some point, you’ll almost certainly have a renter who doesn’t care about your investment property.
Renter screening can help you weed out the worst tenants, but we’re all human.
Relationship breakdowns, work misfortunes, and other life difficulties can force even friendly, ordinary people to mistreat your possessions.
So, what’s the solution? Make sure you have landowner’s insurance to assist you in adapting to the consequences of malignant or unintended damages.
5. Your property may get genuinely harmed
Although it seems unlikely that your investment property may be burned to the ground, or annihilated, it does happen.
Whether it’s due to a terrible renter or a natural disaster, there’s always the possibility that your property will suffer some serious damage at some point.
If Mother Nature decides to drop a massive amount of rain and flood your property, there’s nothing you can do. If it’s in a flood-prone area, you can mitigate the damage in one way or another by paying more to cover flood damage. During the fix or reproduction time, you would, however, lose income. The same may be said for fire.
So what’s the solution? Landowner’s insurance and building insurance, once again, could be your best friends in this situation.
6. Renters have a bigger number of rights than you do
You realize the dodgy tenants we were discussing previously? If you find them doing some unacceptable thing, you can’t simply show them out.
Before you may evict a tenant, you must first issue a series of breach notices that are valid for a set period (to give the tenant time to correct the problem).
Even if they refuse to leave, life becomes increasingly tough. When your home is rented, you can’t just do anything you want with it. You can’t, for example, perform a renovation or even casually drop in without giving your tenants proper notice. Tenants can also make changes to the home without your permission, such as painting or installing a few new appliances. They should, but you won’t find about it until the next inspection.
Finally, you can’t simply evict your tenants if they don’t pay their rent. Before you can begin the removal process, you must first go through weeks (about a month). During this period, the tenant is in charge of your property.
So, what’s the solution? Don’t take the chance of renting out your house as a do-it-yourself landlord.
Property managers are well-versed in the legalities of dealing with shady tenants, and they are considerably better at resolving tenancy issues than you will ever be as the emotionally committed property owner.
For what reason would anybody put resources into property?
With my list of most gloomy situations,’ I hope I haven’t scared you away.
Please accept my apologies if I have done so!
I’d also like to warn you that these threats are unlikely to occur as expected.
The most important point I want to stress is that property investing is rarely a straight line.
With any investing profession, there will be good days and bad days, and it’s critical to be prepared.
Furthermore, in my experience, the most successful financial investors are those who can weather the storms and take the good with the bad.
By InvestFox
DISCLAIMER
No Legal, Financial & Taxation Advice.
The Listener, Reader or Viewer acknowledges and agrees that:
Any information provided by us is provided as general information and for general information purposes only;
We have not taken the Listener, Reader or Viewers personal and financial circumstances into account when providing information;
We must not and have not provided legal, financial or taxation advice to the Listener, Reader or Viewer;
The information provided must be verified by the Listener, Reader or Viewer prior to the Listener, Reader or Viewer acting or relying on the information by an independent professional advisor including a legal, financial, taxation advisor and the Listener, Reader or Viewers accountant;
The information may not be suitable or applicable to the Listener, Reader or Viewer’s individual circumstances;
We do not hold an Australian Financial Services Licence as defined by section 9 of the Corporations Act 2001 (Cth) and we are not authorised to provide financial services to the Listener, Reader or Viewer, and we have not provided financial services to the Listener, Reader or Viewer.
