This topic has been discussed in the most recent EKR Property's Financial Freedom Friday video series, but the tips are important to share in this format too so you can access it at your convenience.
After working with property investors for 20 years (and personally being an investor myself), I have established there are common fears people have around starting their property investment journey. Some of these include:
- inability to secure a tenant and prolonged vacancy;
- fear of failure;
- no deposit;
- insufficient cash buffer;
- the opportunity cost of property investing;
- fear of buying a lemon investment property;
- not having your partner’s support; and
- insufficient knowledge or experience.
Inability to secure a tenant and prolonged vacancy
For most first-time investors, the biggest fear is the fear of not securing a tenant and prolonged vacancy. To help manage these fears:
- Buy the right property which will appeal to the right tenant. A tenant that is renting in that area as a choice, not as a necessity.
- Buy in an area and a property with features that has both tenant and owner-occupier appeal.
- Buy in an area with low vacancy rates, and high demand for rental properties.
- Avoid buying in areas, or property type where there is increased competition, like Unit blocks or large scale housing developments where one finds more properties owned by investors.
- Have financial buffers in place to manage vacancy, whilst not only looking at the small picture and short term issues but look at the bigger picture and more long term when investing in property.
- And lastly, surround yourself with the right team, a Qualified Property Investment Advisor to help you source the right area and property, and engage in professional Property Management services to manage your property.
Fear of failure
There are so many emotions connected with buying your first investment property: stress, anxiety, anticipation, doubt, joy and fear.
Once you discuss, question, review and understand the risks and benefits of owning an investment property, the fear becomes a little less and you can take the first steps.
The best way to face your fear is firstly to understand the process of buying an investment property, and the outcome thereof.
Having the right information during the buying process may also help reduce stress, which in turn means surrounding yourself with the right team. That team should include a Qualified Property Investment Adviser, Mortgage Broker and Accountant.
The most common way to buy an investment property without a deposit is to use your existing home equity. A ‘line of credit loan’ allows you to borrow against the equity in your existing home and you only pay interest on the amount you draw.
If you don’t own a property, then an alternative method would be to secure a guarantor loan, which helps increase how much you can borrow.
Some financial institutions will offer guarantor loans in cases where a friend or a family member will guarantee a percentage of the mortgage on your behalf. They don't even need to guarantee the full loan, which is less risk for them.
As always, before making any important financial decisions consult your financial advisor or accountant to ensure you choose the right option for your circumstance.
Insufficient cash buffer
When you are investing in property, a cash buffer can save you from financial ruin. Many property investors don’t plan to fail, they just fail to plan. Know your numbers, understand your income and overestimate your expenses.
The cash-flow alone sometimes is not enough to cover the holding costs of an investment property, let alone unexpected expenses that do arise.
When it comes to saving a buffer, don’t work harder, work smarter. Look at refinancing and drawing equity out of your existing property to create your cash buffer.
If you don’t already own a property, don’t over leverage and use all your savings for the deposit and purchase costs, leave surplus funds to act as your personal and investment safeguards.
A cash buffer must be considered as part of your property investment strategy, so you can plan for the unexpected, invest safely and minimise risk.
The opportunity cost of property investing
If you’re new to property investing you might have a fear around the opportunity cost of investing. It takes time, effort and capital to get started and to be successful long-term. As most investors work full time the opportunity cost mostly involves family time.
Holding a full-time job while learning the real estate business means you have to invest time and capital around your work schedule, which in the end means even less time with the family.
If the opportunity cost of time and capital just doesn’t fit your current family, work or lifestyle, then you do have other options. You might consider becoming a passive investor and establishing a relationship with a qualified investment advisor that has a proven track record.
This way you have someone with hands-on personal experience and qualifications to manage your fears and expectations and help you make informed and safer investment decisions.
Fear of buying a lemon investment property
It’s natural when investing to have a fear of buying the wrong property.
Here are some of the things to look out for when doing your property search:
- To help ensure you buy a property that will give you strong capital growth and rental demand over time it is essential to look out for key market fundamentals of the area you're buying in such as population growth, planned infrastructure projects and ensuring you are buying at the right point in the market cycle.
- A high vacancy rate could indicate any number of problems within a suburb but generally demonstrates an oversupplied market.
- It is vital to employ a professional to undertake a thorough building and pest inspection prior to buying to ensure the property has no hidden issues.
You make money when you buy the right property in the right location at the right time, and if you're unsure of where to start, EKR Property are here to help!
Not having your partner's support
When starting your property investment journey, it is important to involve your partner from the outset. You both need to be on board with the decision making and the process.
Even if one of you is driving the process, you both can bring something to the partnership to reach the desired outcome. Two heads are better than one, especially two incomes when it comes to the ability to invest.
You should treat decision making in this case like any other in your relationship. You need to trust each other, share the workload, be on the same page, own the losses and celebrate the wins together.
But don’t hesitate to seek help when needed. EKR Property assists many couples when it comes to educating, mentoring, sourcing, negotiating and securing their next investment property and building a property portfolio to help set them up for an earlier and or better retirement.
Insufficient knowledge and experience
I too was in your shoes many years ago and had to begin somewhere. I have leveraged the knowledge and experience of professionals in their fields to help me manage risk, save time and money while building wealth through property investment.
You need to treat property investing as a business. But it’s impossible to do everything yourself.
To save time as well as minimise risk I would strongly consider partnering with qualified and experienced professionals to do some of these tasks for you and offer advice where needed.
EKR Property can surround you with an A grade team of professionals to take you along the process of educating, sourcing, negotiating, securing and managing your next investment property all while managing your fears and expectations.