Well well well well well… Five property holes you can fall down
Property investment is one of the most practical forms of investment. You have something that you can touch with your own two hands, and it gives someone (or a family) somewhere to live. But, practical doesn’t always mean easy, so it’s important to know what to think about before venturing into the world of housing speculation. Here are some of the common pitfalls that people fall into.
1. Not planning to win
The rental market is pretty strong in Australia, but you can’t assume that a property you purchase to rent out will be snapped up. Check vacancy rates in the area that your property is in, and make sure that yours is up to the standard. A house that looks like a steal in a nice neighbourhood might be that cheap because the locals know that no one who’s looking in that area would touch something like that, or it might have a bad local reputation that you don’t know about. Also, check historical vacancy rates for that suburb (if you can), and if they’ve changed dramatically, see if you can find out why. There could be something going on that you don’t want to be a part of, like development, or changing school zones.
2. Terrible tenants
Getting a tenant in your property might feel like the worst is over, but sadly it’s not always the case. Unfortunately, some tenants can be adept at fooling the screening process and wind up being a massive pain in the neck instead, either damaging the property or paying rent late (or not at all!). Alternatively, sometimes good people have bad things happen to them — it could be that tenants have lost their job or have had other things pop up that are taking priority over paying rent (like an illness in the family). In these situations, it pays to have a proactive, communicative property manager working with your tenants to ensure that they’re on top of any potential issues. They’ll be able to let you know if this is a temporary problem, or likely to be an ongoing issue that requires eviction.
3. Hoping for the best without planning for the worst
In the same way that bad lack can befall good tenants, it can befall good landlords as well! Things don’t always work out the way you want, so it’s important to have a plan for if the worst happens. You need to know what you would do if you lost your job, or if you found yourself unable to work for a long period of time — whatever the reason. The same thing goes for interest rates. While it might seem laughable to worry about interest rate increases when they’re so low, the fact is that in the future they will eventually go up again. If you’re struggling to make repayments at the current rates, how will you manage when the inevitable rise comes? Make sure you have a plan in place to manage changes that are out of your control.
4. Speaking of market forces
While you can only stand back and watch some of the broader economics that affect property owners (such as interest rates), there are obviously other things that only affect the housing market. Some of those might be linked to the national economy, but others will be linked to state government changes, or even issues at the local level, such as shifting school intake zones. Those are the ones you can do something about. Chances are that your investment, finance and lifestyle conditions are unique, so when change happens, you need to work out whether you need to act. If in doubt, talk to your financial advisor or property manager about what might suit your needs. You don’t want to be hurt by the market ceiling falling. Speaking of which…
5. Literal ceiling collapses
Okay, something this dire probably won’t happen, but property maintenance gets expensive if you ignore it. Not only is proactive property maintenance in your best interest, in some cases it’s your legal obligation as a landlord. House repairs might not be a fun way to spend money, but they’re always cheaper to do as small or preventative repairs rather than paying for when something goes horrifically wrong. Something small like a bathroom fan not working can lead to devastating mould, and a leaky tap or unsealed sink can cause rot.
None of us have a crystal ball to tell us the future, so all we can do as investors is put one put in front of the other and keep our eyes open. Losing steam is easy to do, but even casual vigilance where it counts will make a big difference to the appropriateness and security of your investments. When you go out in your backyard at night, you bring a torch, so why leave yourself in the dark when you’re investing your hard-earned cash?