It is possible to mitigate against common investment risks, so you can push unnecessary fears aside and invest in property with confidence.
Many people struggle to invest in property with confidence for one reason or another, and they come up with all kinds of excuses for not doing so. We've outlined a few of these in this blog article, but fear of failure is ultimately what holds people back - in life and in property investing.
People tend to be very conservative with money; that's understandable... so even when they see a great investment opportunity, they usually hesitate for fear of making a bad investment decision. And so, the property market moves on and they miss out... again.
Everyone seems to have an opinion about the property market and property investing... from the property magazines... authors of 'I've-done-it' books... the property investing shows... to the property educators... your colleagues, friends... hell, even your family.
We are flooded with info on where and how to invest.
But ironically, this access to so much information, in the form of speculation and opinion, is ultimately what paralyses so many.
Australian's love property. So why do so few of us (less than 1% according to the ATO) invest in property with confidence and succeed as property investors?
The answer is FEAR with a capital F... and this is affected by our ability to understand property market research and to assess and mitigate against RISK.
Fear paralyses prospective investors into total inaction or into an endless cycle of analysis paralysis. I see it often. I've even watched my own friends attend endless property seminars and workshops (at great expense I might add!) only to stop short of actually investing. With every year that the property market moves on - and property prices rise - they become less likely to take the 'plunge' and confidently grow their investment portfolios.
So let's talk about some of their fears and how we can put these risks into perspective, mitigate against them, and invest in property with confidence... for there are many property investment opportunities out there for the informed and, therefore, ‘brave’.
FEAR 1 - I might invest in the wrong location and lose money
The LOCATION of your investment property is the first thing that should be considered. Depending on the location you decide on, it can be an asset or a liability; success or failure. It’s the biggest factor in manufacturing wealth… through capital growth.
According to our property market research tool, Boomscore, 92% of Australian suburbs are 'NO-GO' zones - where rents in these areas will be poor and unlikely to grow much ... and capital growth will be zero or less. So it is really important to buy into the right location.
BEWARE: You don't find the right location simply by investing where you live or in areas you know and are comfortable with... nor do you buy in the right locations by listening to opinion or biased views pumped out by the media or experts with something to gain. It's now finally widely accepted and proven that relying on property market statistics and trends is the safest, most subjective way to decide where to invest... and fortunately stats and AI-driven tools like Boomscore can help you pinpoint, with scientific accuracy, the next locations set to benefit from imminent capital growth.
You have 30,000+ micro markets in Australia to choose from so there will always be locations that are set to boom!
The scale of choice is in itself overwhelming, but you have research tools you can use to do the hard analysis for you.
And, at the very least you can use tools like Boomscore to test opinions or your assumptions before you invest. Boomscore’s free Suburb Profiler feature can give you the stats and an important capital growth Boomscore for any of Australia's 30,000 markets (that's Unit and House markets in 15,000 suburbs) you might be considering.
For those who are less risk averse or experienced in property market research, you probably won't go wrong if you invest in major capital city or fringe outer suburbs.... as, even if you don't employ strategies to manufacture additional equity, a long-term investment in these areas (where median house price growth is usually strong) is probably still better than investing in cash (i.e. doing nothing).
But if you have more appetite for risk or understanding of how to conduct some basic fundamental research, then outlying regional areas might present some lucrative investment opportunities for you. Your fundamental research should consider the area’s employment prospects, reliance on the rental market, infrastructure plans and availability, the size and growth of the population, future funding and plans for the area.
Essentially, you should always invest in areas - regional or otherwise - that appear to be on the way UP
... and there are 8 key property market statistics (indicators of supply and demand and therefore capital growth) that will help you identify this. To fast-track your property market research understanding, you can read our FREE 'Essential Guide to Property Market Research' to learn more about key property market supply and demand stats, where to find them, and how they can help you.
FEAR 2 - I may not be able to afford my property investment
Many investors worry they won’t be able to afford or cashflow their investments.
You can reduce this fear by conducting a good cash flow analysis of your household income and expenditure - both current and anticipated future, as well as tax benefits from negative gearing and depreciation and estimated costs of ownership.
If you don’t think you have the skills to do this properly, then find a lender or broker who can help you, as some proper financial consideration upfront will pay dividends.
When buying a rental investment, it is really important to look at the area’s Vacancy Rate statistics. It will help you produce a more realistic cash flow analysis if you are able to anticipate likely periods without rental income. Read our blog on Vacancy Rates for more useful information. Again, Boomscore can give you these stats for every Australian suburb and micro market so you don’t have to be caught by surprise.
And if you don’t want to purchase your own investment property, but like the idea of investing cash in property (for a return), then there are plenty of crowdfunding investor-developer opportunities out there. We usually work with select Boomscore users on one or two development projects a year (and always in high growth locations) when projects that meet our high criteria come along… but there are plenty of other companies who do the same. Just make sure the organisation you invest with has a good track record and operates in a regulated environment.
FEAR 3 - I don't want the hassle of bad tenants
All investors hope (and sometimes pray) for good tenants; those that look after the property, pay their rent on time and are respectful neighbours. But sadly this doesn’t always happen and bad tenants can cause significant problems resulting in unwanted time and costs. Never underestimate the value of a good property manager and landlord insurance. Make sure you or your property manager check out prospective tenants on the Residential Tenancies Database and conduct property tenant interviews and reference checks as well as regular routine property inspections.
FEAR 4 - I might buy or sell at the wrong time
Many investors worry about when to buy, hold or sell for maximum returns. None of us has a crystal ball but a glance at the property market trends can reveal some great insights into whether property prices are likely to rise or fall and so when is the best time to buy or sell.
Until now, timing the market has been almost impossible, but tools such as Boomscore’s Market Alerts feature can now notify you when key property market stats change in your chosen suburbs, informing you when it’s time to act for maximum property profits.
Now that you understand some of the key risks and how to mitigate them, here's hoping you will be able to invest in property with confidence!