Be Careful Of Risky Property Investment Strategies That Can Cost You Your Shirt
We understand any investment has its risks, its not about avoiding risk, its about taking calculated risk. Knowledge is power, if you have the knowledge then you can make a more informed decision. Its best to speak to an experienced investor before making an investment decision.
Investments strategy such as buying house and land package off-the-plan can work very well, provided that you’re aware of the pros and cons.
There are different strategies to consider. You will be able to identify the right strategy for you once you understand the different strategies.
wealth Creation Seminars
Wealth creation seminars strategy is to sell you easy ways to make money and promise big result with a seemingly small investment of time. They are selling you an idea, not a tailored made solution. They work on exaggerating the benefits of their strategies so that you can spend $5,000-$6,000 on their 2-4 days workshop that let you in their BIG secret. But when you try to implement their strategy you have a higher risk of failure as you have limited or no guidance from them. They provide minimal support as most of the contact is done by email or by phone.
Work with an investor that offers you face to face guidance throughout every stage of the investment process to maximise your chance of success.
Commercial Property Investment
Commercial property can offer many benefits such as higher rental yield and outgoings are paid for by the tenant with longer-term tenancies. However, there are also many risks.
Risk in Commercial property
- Your commercial property can sit vacant for many months, sometimes even 6-7 months until you find a suitable tenant
- It is harder to find a buyer particular in poor market conditions
- It may take longer than residential property to sell
- High risk. Bank only lend up to 60% due to the high risks associated with commercial property. Therefore you’re required to put in 40% deposit. this is a big investment that could be diversified and leverage into residential properties.
- Sluggish growth. The commercial property may have little land content or locate in a suburb where land is abundant therefore impeding growth.
Investing in commercial property is high risk and required a massive deposit. Again your initial wealthy building strategy is all about minimising risk.
Flipping property Is where you buy a property for a good price then sell it within a short period of time for a profit. Or buying a house that needs repair and fixing it up before reselling it for a higher price. However, this is very speculative.
Risk in ‘flipping’ property
- When you consider high holding and transaction costs such as stamp duty, loan repayment and selling costs etc. You may find that on a $400,000 property, your transaction could be as high as $30,000 – $40,000.
- No one has a crystal ball and guess what the future will bring. If you buy and sell quickly, and the market swings against you, it can be very costly.
- Many people watch television shows that do not represent reality. You buy a property $380,000 spend $30,000 and sell straight away for $450,000, but it doesn’t happen that way.
‘Flipping’ property is very risky and can be very costly. Again your initial wealth building strategy is all about minimising risk.
Property developing can be very profitable, it is also very risky and time-consuming.
Property development risk
- High capital – bank lend about 60-70%. You need to come up with 30-40% deposit plus other costs including stamp duty.
- Time-consuming and risky. Development can take 1-4 years to complete and require a lot of time and energy.
- Huge holding cost from start to complete. You’ll need to factor in interest rates, council rates, bank fees and also be careful of construction cost blow out.
- Lack of knowledge and experience. Property development requires experience and skill when purchasing the site, organising building permits, putting together the right team of professionals, getting approvals, managing your finances and conducting feasibility studies to make sure it’s profitable.
- Purchasing a wrong development site. Some sites may have flood issues and service issues etc.
This is very risky when you consider the number of developers who go bust. Your initial wealth building strategy is all about minimising risk.
Risks With High Price Established Properties
Buying an established home in Melbourne is out of reach for many investors due to the low rental yield and very high property values. Many investors will make the mistake of investing in 1 or 2 established properties which will over-commit them financially and make it extremely hard for them to invest in the future.
Avoid expensive properties with low yield. An affordable off the plan house and land package in Melbourne growth locations can offer you high growth, high rental return, and high tax benefits which can help you to invest in your next property sooner.
Cash Plow Positive Property
The focus is on rental yields with smaller capital growth. So why is a property positive cash flow? Because slow growth, the rental picks up making it positive cash flow.
Risk associated with cash flow positive property
- Very slow capital gain. Cash flow positive properties can attract less demand such as those in rural locations or regional areas. Because there is less population growth, the properties grow a lot slower.
- Higher vacancy rates. If you purchase in an area that is less desirable it can take you months to rent out.
Wealth is created through capital growth. You need capital gain so you can leverage to invest in your next property faster.