Risk # 1: What if i can’t find a tenant?
Look at the facts…
The vacancy rate in Melbourne is about 3%, meaning out of 100 properties, only 3 are vacant, 97 are rented out. 3% vacancy rate is an equilibrium market.
- Select location with high rental demand and shortage of rental properties.
- Reduce the rent by $5-$10 to attract tenants to choose your property over others.
Risk # 2: What if i have bad tenants?
And what if the tenants don’t pay rent or damage my property?
Get landlord insurance protection.
Buy in good location, this minimises the risk of bad tenants.
And also the property manager would screen the applicants first before they accepted the tenants.
For property damage (fire, rain, etc) get building insurance.
Risk #3: What if i lose my job?
If you lost your job, you will find another job. Make sure you have a financial buffer, say $10,000-$15,000, this will covers you in rainy days.
- Obtain comprehensive insurance; income protection insurance.
Risk #4: What if the interest rates rise?
Investing in property is a long term strategy, you should hold on to the property for at least 10 years to have the biggest rewards.
During this 10 years interest rate goes up and down. When interest rate rise, this doesn’t effect the investor as much as an owner occupier. As an investor you get more tax back to cover the interest.
- Choose an interest rate only loan for lower repayment.
- You may consider to fix the interest rate, so you know the repayment over the next couple of years.
Risk #5: What if the Market Collapses
Understand property cycles, historically well selected residential property double every 10 years. During this 10 years cycle, it goes up, it stabilise, it may go down a bit, then it goes up.
Residential property has only corrected itself.
The key is to BUY, HOLD AND NEVER SELL… Investment is a long term strategy.
RIsk #6: The risk of retiring broke
Only about 7% of Australians own residential investment property, most people don’t invest because they fear of debt or they procrastinate.
The biggest fear of all is retiring broke. The statistics shown that out of a one hundred Australian, after working for 40 years, 95% end up broke and 5% are financially free. So when you reach retirement age, will you be financially free or end up on the pension?
The biggest risk of all is not doing anything.
To minimise risk is to have the correct knowledge and the right information from successful investor who have actually done it.