When it comes to property investment, an approach that is risk averse and geared towards building wealth slowly is what I practice, both for my clients and my own portfolio. Not only is this approach more successful in the long term, it also means that when there is an upheaval in the market you are less likely to lose money – or sleep.
So what is a risk averse approach? Essentially, it’s avoiding trouble. Here are five key risk factors to be aware of. Knowing them will help to keep you from making any expensive errors in your property investment journey.
Borrowing too much money
This is the big one. It’s easy to focus on how much the bank will ‘give’ you but it’s not a gift, it’s a loan, with interest. And you need to think carefully about how you will repay it, and what happens should you lose your job or interest rates start to go up.
But how do you know how much is a ‘safe’ amount? To work this out, you’ll need to look at your work income, your projected rental income, and any tax deductions you’re entitled to, such as the interest on your investment loan.
With my background in accounting, one of the things I always do is ensure my clients are well inside the safety margin when they borrow money to buy an investment property.
Negotiating a sale yourself when you don’t have experience
A property negotiation requires a cool head and a good understanding of a property’s true value. Most people don’t have a real estate background and will only negotiate on a property two or three times in their lifetime. When up against someone who does it for a living, this doesn’t always go so well for the buyer, and you can end up paying too much for a property.
As a buyer’s agent, negotiating hard is something I enjoy and have a lot of experience in, which leads to better outcomes for my clients.
Neglecting to research a property’s sales history
When you find an investment property you like the look of, it’s essential to get an overview of its sales history and related prices in the area to determine its true worth. Being a licensed agent means I have access to a database of all sales in the particular area, which I can use to determine a property’s value when it comes time to negotiate.
This means I can obtain fair market value for my clients, which gets their property investment portfolio off to a great start.
Getting swayed by slick marketing/sales pitches
Real estate agents are skilled sales people, backed up by a team of stylists, copywriters and photographers. It’s easy to get drawn in to a slick marketing campaign and the fear of missing out. Sometimes those well-marketed properties are good buys, but they aren’t the only ones out there.
One of the most satisfying parts of my job is finding ‘hidden gem’ properties for my clients. These often work out to be great value and sound investments.
Rushing in or getting emotional about an investment
Buying an investment property is not the same as buying your own home. You can afford to take your time because you aren’t looking for somewhere to live, you’re looking for a steady long-term investment that will grow your wealth.
You don’t need to fall in love with an investment property, although it does help if you like it. Property investment, like any wealth-building strategy, should always be done with independent and professional advice. Please give me a call if you’d like to learn more about what I can offer you.