4 ways to reduce your risk as a property investor
Bessie Hassan | Money Expert at finder.com.au
There are many benefits to investing in property. It can give you a stable and consistent form of secondary income, and despite property prices moving in a cycle, they have historically appreciated over time, which means you’ll also likely benefit from capital gains growth in the long run.
But entering the property investment market can be daunting. Property values can change and rising interest rates can make it difficult for you to make your repayments. Making sure you minimise your investment risk can give you some much-needed peace of mind.
Here are four ways that you can reduce your risk so that you can enjoy the benefits of property investment.
Do extensive research
When buying and managing an investment property, there are a few different paths you can take, so it’s important that you understand the differences before you decide. Consider whether you want to buy in Australia or internationally, what you want to buy, how much you want to spend and how you’ll finance your investment.
If you’ve decided on a market, you’ll want to find out more about the area. Consider the supply and demand of the properties in that suburb and its surrounds, find out the average rental yield for different properties and check with the local council to see if any infrastructure projects could affect the demand and availability of property in the region.
Soak up as much information as you can to learn all you can about property investing.
Speak to a professional
Even after doing your research, figuring out whether or not a particular property will be a valuable investment isn’t always easy to determine on your own. Speak to an accountant, a buyer’s agent, a mortgage broker or a financial planner to help you decide on the best investment strategy for you.
For instance, a mortgage or finance broker can explain how you can minimise your taxable income and lower your monthly repayments by using a linked offset account.
A solicitor can help you understand the legal documentation side of things before you make the big decision. Similarly, an accountant can guide you through any cash flow issues and help you manage the paperwork involved in the purchase.
Split or fixed rate loan
Variable mortgage rates can be unpredictable, therefore splitting your loan or going for a fixed rate home loan can minimise your risk. A split home loan allows you to take advantage of flexibility and security. A fixed home loan is an even safer option, enabling you to know exactly what your repayments will be each month.
Invest in different areas
If you’ve decided to invest in more than one property, you should avoid putting all your eggs in one basket. In the case of an economic downturn, it’s less likely that you’ll be negatively affected if you’ve invested in a variety of different areas. Consider diversifying your portfolio by investing across different markets and property types to ensure you’re protected against any unforeseen events.
Understanding the processes and considerations involved in property investment is the first step to minimising your risk, and minimising your risk will allow you to reap the financial benefits of your investment in the long run.