4 property investment risks and how to reduce them
Short of putting your money under your bed, every form of investment comes with a risk – and even cash under the bed comes with risks!
The key to successful investment is knowing what the risks are, and knowing how to reduce them.
In a previous blog post, we wrote about some risks in property investment; here are four more potential risks to consider, and ways to reduce them.
- Newer homes need maintenance too
Every property needs maintenance at some point, regardless of age. While the chances are you will have fewer maintenance issues in a newer property, there are some mandatory ones you need to keep on top of; for instance, smoke alarms aren’t legal if the battery is flat.
Newer properties have been known to have plumbing and electrical issues too. Furthermore, tenants often expect modern properties to come with a few more mod-cons – so there are more appliances with the potential to go wrong. While they may be covered by warranties, these may not be valid if the appliance isn’t serviced and maintained properly.
So, the key here is, regardless of the age of the property, service appliances regularly, and have regular inspections, so any potential issues can be picked up early.
The savvy investor budgets for servicing and the known maintenance costs, and keeps a bit more aside for the unknown; this will help take the financial pressure off when the unexpected maintenance costs come up.
- Vacancies do occur
There are lots of reasons why your property may have a period of time without a tenant, even if it’s in the most in-demand property types and in the tightest rental markets.
For instance, it may be in need of maintenance, you may have priced the rent above market value, or it could simply be just be a case of bad timing.
Once again, if you have finance on the property, you will need to budget for unexpected vacancy periods. To reduce the risk of extended vacancy between tenants, ensure your rent is priced for the market, and try to avoid listing your during low-demand periods, such as in the lead-up to Christmas. Take a look at our recent blog on ‘how to reduce your vacancy rate’ for other strategies.
If there is going to be a period of time without a tenant, that is the time when you can look at decorating and making other improvements to add value, and hence justify any rental increases.
- Rental legislation
Did you know, landlords must ensure that at least one smoke alarm is installed in a hallway outside a bedroom or other suitable location in each storey of a rented home. Smoke alarms (including heat alarms) must be working, and they cannot be removed or disabled?
Health and safety risks you’re prepared to live with in your own home may not necessarily be legal if you’re renting your property.
Regulations are there for a reason – to keep people safe and to preserve both the rights of the tenant and the landlord.
There are legal consequences for violations of rental property regulations – these usually include fines but in some cases, criminal penalties may apply.
Some of the legal aspects of renting a property can easily be overlooked, but not knowing them is not a reason for inadvertently breaking them.
To mitigate this risk, ensure you’re fully aware of all legislation and updates.
- Rental paperwork
There is paperwork associated with an investment property; condition reports, tenancy bonds, what should or shouldn’t be in a tenancy agreement, the list goes on.
Bad paperwork can lead to issues and disputes down the track – and these can be costly if you’ve nothing to back you up.
It is vital all the paperwork is completed correctly, and is done in a professional way. All tenant agreements should be documented in writing. That way landlords and tenants will understand their rights and responsibilities from the very start.
How to mitigate all the above risks?
Use us as your property manager!
We can’t unfortunately do anything about unforeseen expenses, but we can tell you what to plan and budget for, what to think about, and give you information to help you make informed decisions when planning for the future.
As well as managing the physical side of your investment property, such as finding a tenant and managing your maintenance schedule, and ensuring rental paperwork is correct, we record the financial outgoings and give you statements at the end of each month, and an annual statement. That way, all you have to do is hand it to your accountant for your tax return!
Furthermore, we regularly attend industry training events to ensure we’re on top of all the latest legislation, and continue to operate at best practice.
If you want to know more about our property management services or investing in property, get in touch. Our motto is very simple – we treat every property as if it’s one of our own.
Get in touch with us to find out how our property management services can make your life easier.
Drop into the Cardiff office or give us a call on 02 4956 9777. Or send us an email at mail@newcastlepropertymanagement.com.au – we’ve helped many people realise their financial dreams through property and we’re keen to help you.
Check out our Facebook page for other property tips.