WEALTH HUB JOURNAL

Property Investment — Make the Most of Your Investments While Minimising Risk

Any kind of investment comes with risk. While property investment is a relatively stable investment option — and considered the best investment by many — it’s important to know how to minimise risk while maximising reward.

Here are 8 ways to make the most of your property investments while protecting your future.

1.  Diversify your portfolio

Residential, industrial, and commercial properties all come with unique risks and rewards.

Building a diverse portfolio with an array of different property types is the best way to minimise your risk. By spreading your property investments over multiple markets, you’re insulated from the effects of a downturn in any specific market.

While property markets typically don’t experience dramatic swings like the stock market or cryptocurrencies, for example, they do fluctuate over time.

If the cost of living spikes in a particular area, it may be hard to find a tenant for a residential property. However, most tenants in a commercial property with a long-term lease would remain in their location. So having both types of properties in your portfolio will mitigate the effects of slumps in either market.

2.  Do your research

With any investment, you need to understand what you’re investing in. When purchasing an investment property, there is a lot you need to know before you buy.

For example, you want to invest in property located in a high-growth neighbourhood. Educate yourself on any significant developments that are happening locally, and assess the potential for rental fees to increase over time. Higher monthly rent can increase your return on investment.

Also do your due diligence on the property. Arrange inspections for pests and of the building itself. Find out if there are any building applications or approvals that you need to know about.

This can be a lot to handle, and it’s important to be exhaustive in your research. You don’t want a surprise down the road that could have been discovered before you signed.

At Wealth Hub Australia, we can take this task off your hands and ensure the property you’re considering is a good investment for you.

3.  Make sure you’re fully insured

If you’re a property owner, you need to protect yourself from the unexpected. Maintaining the right types of insurance protects you financially in the case of damage, accidents, or natural disasters.

When assessing your insurance needs, consider both the building and its contents, as well as landlords, life insurance, and income protection.

Our referral network of certified professionals can help you navigate this process and ensure you have the proper coverage for your investment.

4.  Get a fixed-rate mortgage loan

With a variable-rate loan, fluctuating interest rates will likely leave you paying more. If your monthly repayments go up, this reduces your cash flow and can cause a setback in your long-term investment strategy.

However, with a fixed-rate mortgage loan, you’re protected from rising interest rates. Before signing up for a loan, look for the best deal available as lenders sometimes do promotional offers.

5.  Protect your cash flow

Cash flow, or net income from your property, is the remainder after you pay all property expenses. These include mortgage repayments, taxes, maintenance expenses, building manager fees, and more.

If your expenses total more than you’re collecting from rent, you may experience negative cash flow. In this case, you’ll need to find an alternative way to pay the balance required. This may come out of your savings or from another income source.

While claiming a loss on an investment property is a way to reduce your tax liability, if this is not part of your investment strategy it can create headaches and hinder your long-term financial goals.

Before purchasing a property, enlist the help of a professional who can assess the investment and determine the type of cash flow you should expect. This will help you avoid a negative cash flow if it isn’t part of your strategy.

Having sufficient cash flow from other income streams can also help cover expenses if your property unexpectedly becomes “negatively geared”.

6.  Prepare for low liquidity

Relatively low liquidity is one of the reasons property is such a stable investment option. Property markets are generally protected from massive downturns that can happen when too many investors suddenly offload their assets.

Consider a stock market crash or a steep drop in the value of cryptocurrencies or NFTs when investors get skittish because of the day’s headlines and sell on a whim.

This isn’t possible in property markets because offloading assets, especially commercial properties, takes time. However, it’s important to maximise your ability to cover expenses while you “liquify” your asset in case of an emergency.

If you run into financial hardship and need to offload a property, maintaining a buffer on your loan funds can help get you through the process of liquifying your asset.

7.  Don’t let emotion get in the way

When you’re purchasing an investment property, it’s important to maintain a level of emotional detachment. This is an investment, after all. If a design choice or some other superficial detail isn’t to your liking, that doesn’t mean it isn’t the right investment for you.

When emotion gets in the way, it can create confusion around your investment strategy and entangle you in indecision and needless doubt. It can also make you feel undue pressure.

A level-headed third party can help you stay on track and make the right decisions for your future to help you reach your financial objectives. You don’t want to miss a great investment opportunity. When decisions are difficult, we can help you make them objectively.

8.  Don’t go it alone

While you can learn to do most anything online, it’s important to enlist the help of certified professionals when developing your investment strategy and purchasing properties.

Experts with years of experience can help you avoid costly detours on your investment journey. Seek counsel from conveyancers, inspectors, financial advisors, accountants, buyers agents, and mortgage brokers.

Contact Wealth Hub Australia today

At Wealth Hub Australia, we help everyday Australians develop an investment strategy, choose properties, build wealth, and achieve financial independence.

Our trusted referral network of industry professionals will be with you every step of the way. With our proven process, we will help you reach your financial goals, retire well, and build a legacy.

Contact Wealth Hub Australia today for a free assessment so you can begin your investment journey.

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