How to minimise risk when investing in property

How to minimise risk when investing in property is often a client’s biggest concern. There are lots of ‘what if’ questions that stop people from taking the step into investing and yet they are not as hard to diminish once you understand what your fears are. Because it all comes down to fear.

Here are some common fears that people have about investing in property:

  1. What if I don’t get a tenant?
  2. What if interest rates go up?
  3. What if I lose my job?
  4. What if the tenant trashes my property?

And the list can go on…

I reassure my clients by being honest – yes, things do happen, but each fear can be related back to a dollar figure. So here are some ways to mitigate the risks as mentioned above:

No. 1 – What if I don’t get a tenant? – At Smarter Property Investing, we firmly believe that if you buy the right property in the right area with the right infrastructure, getting a tenant won’t be an issue. Too often those who find it hard to get a tenant is where there is oversupply or an area where people don’t want to rent. Position! Position! Position!

No. 2 – What if interest rates go up? – They probably will. Let’s face it, at the time of writing this we are in one of the lowest ever interest rate markets, so they will most probably go up. Your lending institution will have factored that into your loan agreement. But I would strongly suggest you borrow an extra 3 – 6 months’ worth of mortgage repayments and keep this money in an offset account.

No. 3 – What if I lose my job? – How long would you be out of work for? Two weeks, six weeks, six months? If it’s four weeks, that’s perhaps $4,000 in lost salary,

No. 4 – What if the tenant trashes my property? – Landlord insurance is a must when you have a property. For a couple of hundred dollars, you have peace of mind that you are covered for anything untoward happens to your investment.

I call this my I.C.E. strategy or cash buffer.You could call it a safety net but whatever name it goes by the money is there to be used if or when any of the above doesn’t go to plan. You borrow an extra dollar amount, which varies from person to person depending on their risk tolerance. For some it’ll be $10,000 and for others $60,000. Put this extra money into your offset account and when needed it’s there.

Be prepared and you won’t be disappointed!

As always, if you have a question leave a comment below.

Until next time,

From the desk of Christine.

1 Comment

  1. Lisa on January 3, 2019 at 9:53 am

    Hi Christine,
    You mentioned above about borrowing an extra amount for possible future hiccups. I was wondering, in some cases this would mean you would be borrowing more than the 80% which would trigger LMI. If this was your first property and an investment property, would the fact you have LMI harm your ability to then purchase multiple properties? From what I have heard of other peoples property investment stories, in the past the banks have really taken notice of this and it has hindered their ability to grow their portfolio.

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