How to Avoid an Investment Property Horror Story
Let’s face it, we’ve all heard investment property horror stories. They’re the ones where a well-meaning investor is left destitute after sinking his life savings into property that turned out to be a complete lemon.
Sure, these stories make a great read, but how likely is it that these things will happen to you? In this article, we show you just how easy it is to build wealth through property and avoid investment property horror stories.
When it comes to horror stories, the one about the feral tenants who trashed the house has to be one of the best. Yet in today’s competitive rental market, the odds of you encountering this problem are quite low; especially if you take simple precautions.
If you’re at all worried about dealing with tenants, hiring a good property manager is the way to go. They’ll take care of rent collection, maintenance, repair work and other day to day issues for you, so you don’t need to sweat the small stuff.
Similarly, taking out landlord insurance is another great way to protect yourself from horror tenants. As the name suggests, landlord insurance offers property owners a financial safety net against unforeseen damages or destruction by tenants. It also usually covers you against loss of rental income should your tenants suddenly stop paying rent.
Property value not rising
The investment property that doesn’t increase in value is another classic horror story that all investors have heard at least once. Yet, the reality is that while property values ebb and flow over time, most residential properties will see capital growth over the long term.
The key is getting the right investment property to suit your needs. This comes down to understanding not only what you want to achieve, but also, which properties and locations are best suited to your goals. For example, apartments and houses have different success rates in different parts of Australia over the short, middle and long term. If you’re unsure about which investment type is best suited to you, talk to a professional property investor at Vystal.
Loss of income ‘I can’t afford this investment property’
The idea that you might suddenly lose your income and not be able to afford your investment property is another classic horror story. As a landlord, you are responsible for paying the mortgage on your investment property each month. However, it’s important to remember that you normally won’t have to pay for the whole thing on your own. The rental income you receive from your tenants will keep flowing in, even if your job income suddenly stalls or dries up. In fact, having an investment property is an excellent way of ensuring that your net worth isn’t solely reliant on your paid employment.
Many investors choose to take out income protection insurance. If you are sick or injured, this can help you cover your minimum monthly repayments until you return to work.
My parents told me not to do it – I should have listened
Few horror stories spark more dread in the new investor than the one about the person whose parents told them not to do something and they wish they had listened to them. Let’s sort this one out right now.
Back in the day, when a new house cost $18,000, the idea of mortgage debt was considered to be a bad thing. People, like your parents or grandparents, worked hard to pay off their homes quickly so they were no longer at the mercy of a bank or financier. Today, however, things are different. The average Australian house costs over $600,000 and people are starting to think a little differently about how they use ‘debt’ to help them build wealth.
Here’s an example. Tom and Julie have a 30-year home loan and are paying off roughly $10,000 in principal each year. After ten years, assuming a few variables, they would have paid roughly $120,000 – $150,000 off their home loan. It will all be paid off eventually, but it’s a slow way of doing it.
Now, let’s say they used the equity in their home and borrowed some money as a deposit for an investment property. They buy the property for $500,000, which increases in value over the next decade to become $1 million. In just 10 years, they’ve made a $500,000 profit (assuming a 7% growth rate).
The short story is, if Tom and Julie listened to their parents and waited until they paid off their first home, they would have missed out on 30 years of future capital growth from an investment property.
Want to know more?
If you’re new to property investing, or know someone who is, the team at Vystal are always happy to help. As one of Australia’s most trusted property investment companies, we’re pleased to share our knowledge on property wealth management and planning strategies. Call us today on: 1300 VYSTAL or get in touch with us online.