5 investment risks to watch out for

Investing in property is a great way to build wealth, however, things can go wrong at times and it’s important to be aware of your risks before you invest. Here are a few issues to be aware of and prepare for:

1. Length of sale

If you suddenly find yourself in a position where you need get rid of your property, it isn’t a quick process. It takes time to list, sell and settle the property. If you need the money urgently, you might find yourself in a position of accepting a lower price than you wanted because you need it sold.

2. You need larger sums of money

With shares and some other investment options, you can start with very little money. When it comes to property you need a large deposit or access to equity in your home to be able to get another. On top of this there are costs to set up and maintain the property, taxes, insurance, stamp duty and more you need to budget for.

3. Vacant property issues

Ideally your rental property would never be vacant, but that is not the case. If your investments are a tight squeeze on your budget already, having a vacant property can put too much pressure on and sometimes force you to sell.  

4. Variable interest rates

When looking at home loans, play around with interest rate calculators to see how much extra you would pay if rates increased. For some investors as little as 0.5% can see them struggle to maintain their property. Make sure you have a buffer between what you are paying and what you could pay if needed.

5. Buying the wrong property

Without doing research and due diligence you might get caught with the ‘wrong’ property such as one in the wrong area, one which needs too many repairs or doesn’t have capital gains potential. This can set you back years in your investment strategy. Do thorough research when looking to invest in property on everything from the area, the vacancy rates, the rental rates and the home loan options available to you.

Before you invest in property, take the time to understand the risks as well as benefits. To help, ask yourself the following:

• Is property is the best way to invest your money, based on your circumstances, tolerance of risk and goals?
• Do you understand the risks of investing in property?
• Are you financially and emotionally ready to be an investor?
• Do you have an investment strategy including a financial plan?
• Are your financials stable and in order?
• Do you know how to manage your budget once you purchase the property?
• Do you have people to support you if things get rough?

Investing in property can be a lot of fun and lucrative if done right. To ensure your investment loan is right for your goals, speak with a broker today.

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