Investing in property is one asset class that has a lot of advantages and it also has its fair share of disadvantages, as does any investment.
The nature of property investments requires us to make decisions that are much bigger decisions than when we purchase our main residence. This is true no matter whether we're buying an investment property for $300,000, $500.000 or a million dollars.
This is based on the fact that property is an asset that is largely illiquid. Therefore, our ability to be able to sell the asset quickly is not always our reality and that is something that we need to bear in mind. Inventing in property is usually a 5 to 7 year time frame when you are looking to achieve a capital return as well as a reasonable rental return.
Property investing needs to be carefully done because there are lots of challenges that you will face in regards to the different products available in the marketplace.
One of these products is Rent Guarantees. The offer of Rent Guarantees has seen a proliferation of properties being sold with a guaranteed rental return for a pre-determined period of time. The problem with Rent Guarantees is that some are based off the back of inflated capital purchase prices.
For example, we are aware of a gentleman who bought a unit for around $200,000 under a Rental Guarantee Term for three years. The $200,000 valuation was based on a 5% yield at $200 a week. Shortly after the Rental Guarantee ceased, the gentleman discovered that their investment property was only worth $130,000. What had actually happened was that there was a tenant residing in the unit during the Rental Guarantee period, however they were only paying $90 per week. The promoters who sold the property originally were chipping in the additional $110 per week for the three year Rent Guarantee period. This meant that the promoters netted about $50,000 - $60,000 profit, while the gentleman was left $70,000 (plus) out of pocket.
So it is important when you are buying property that you make sure that the properties are valued and rent appraised independently of any promoters and you must do your own research accordingly.
Taking these simple steps allows you to then to be in a position to build your equity overtime, it allows you to change direction if necessary, to conduct some renovations if required and to possibly even purchase a second investment property.
So property investment can be a very rewarding experience but it can also be parabolically the other way if you are miss managing your debt or you are making decisions on inaccurate facts. Just make certain that the investment property that you are eyeing off is fairly priced against the current market prices.
If you need any assistance, please do not hesitate to reach out to us.