Australian investors made $3.72 billion in losses on rental properties during 2013/14, according to CoreLogic's most recent data. A portion of these losses may be intentional for tax purposes, however it's likely that a lot of this amount is made up of investors who didn't effectively minimse the risks of property investment.
To help make sure your next investment makes a profit, we've had a look at three key risks and how you can help negate them.
1. Property value decrease
Over the year ending September 2017 the average property price in Melbourne increased by 13.2 per cent, according to the Australian Bureau of Statistics. That shows the market here is generally strong, however, property is complex and each town, suburb and even street often has it's own distinct market that behaves in a unique way.
To make sure your investment holds its value, look for the following when you buy:
- Price growth in the recent past.
- A growing population in the area.
- Plans for future development of the area, including: employment centres, transport and infrastructure.
- Early signs of gentrification.
If you pay attention to these factors when buying, and maintain your investment well, it's very unlikely to decrease in value in the near future.
If you're mortgaged to the hilt a rise of just 0.5 per cent, could cause serious difficulty.
2. Interest rate increases
The most significant cost for most property investors is mortgage interest. For that reason, interest rates rising is one of the biggest risks of property investment, regardless of where you're located. In Australia, rates are at near record lows, however industry experts expect that they may start rising soon.
To protect yourself against the extra costs associated with an interest rate rise the best advice is simple – don't overextend your finances. If you're mortgaged to the hilt, a rise of just 0.5 per cent could cause serious difficulty. Only take on extra finance if you could comfortably pay it off even if interest rates rose by 2 per cent.
3. Vacancies and bad tenants
Vacancies reduce your rental income and can put a strain on your finances. Bad tenants can increase vacancies, damage your property, or much worse. All of which makes property investment more difficult, and less profitable.
Your best protection against bad tenants and vacancies is to hire a property manager that you can trust – get in touch with your local Brad Teal office today to get started.