Top 10 Risks of Property Investing and How to Avoid Them

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Dennis Wong

• Property investor for the past 10 years.

• Personal experience with renovations.

• Great amount of industry experience.

Material contained in this presentation is an overview only. It should notbe considered as a comprehensive statement on any matter nor reliedupon as such.

This presentation contains general information only and does not take intoaccount your personal objectives, financial situation or needs and youshould consider whether the information is appropriate to you beforeacting on it.

Before acting on any information you should consider seeking advice froma financial adviser and your accountant before making any financialdecision in relation to any matters discussed in this presentation.

General advice disclaimer

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Top 10 Risks & How to Avoid Them

Tips to avoid risk• Research the vacancy rate & rate change on

suburb.

• Research area – transportation, schools,

jobs, amenities, entertainment etc.

• Review rental comparables – be realistic in

expected rent.

• Engage in reputable property managers

who will ensure your property is properly

marketed.

• Keep some savings in reserve in case of

extended vacancy.

Risk 1: VacanciesHaving your investment property vacant means no rental income.

Tips to avoid risk• Research the suburb demographic, who are

your likely tenants?

• Engage in reputable property managers who

will ensure your property is properly

managed & thorough background checks are

completed.

• Invest and maintain the right landlord

insurance policy.

• Invest in the middle of the market, more

likely to attract good tenants who are

responsible and will look after your property.

Risk 2: Bad TenantsFinding the right tenant for your investment property can be difficult

in some situations.

Risk 3: Maintenance IssuesInvesting in a property where it requires constant maintenance

can cost you thousands.

Tips to avoid risk• Engage in reputable builders and tradesmen – check their history, reviews,

licence, insurance & registration.

• Make sure you do a Building & Pest Inspection.

• Have the right insurance.

Risk 4: Natural DisastersParts of Australia experience different natural disasters such as

floods, bush fires, cyclones and extreme weather.

Tips to avoid risk• Avoid areas where these natural disasters occur.

• If investing in these areas, ensure your property is built to withstand the

natural disaster.

• Maintain appropriate insurance policy that covers damages caused by

relevant natural disasters.

Risk 5: Unforeseen costsCan be expensive and you may not have enough set

aside for unexpected costs.

Tips to avoid risk• Landlord Insurance – cover loss of rent & damages from

tenant.

• Contents Insurance – covers items inside the property.

• Building Insurance – covers unexpected events that damage

your building.

• Income Protection – covers you if you are unable to work for a

period of time due to illness or injury.

• Life Insurance – cover mortgage repayments in case of death.

Tips to avoid risk• Avoid borrowing too much.

• Always consider how interest rate

increases will affect your mortgage

repayments.

• Ensure you have some cash flow positive

properties.

• Fixed vs Variable Interest Rates.

Risk 6: Debt GearingIs the difference between the debts owed on a real estate investment

and the equity within the investment.

Tips to avoid risk• Consider fixing your interest rate.

• Keep your portfolio to a size that you can

maintain and not be forced to sell off any if

repayments increase.

• Maintain a balanced portfolio where you have

positively geared properties that can cover all

their own loan repayments and expenses.

Risk 7: Interest Rate RisesWill increase your mortgage repayments whether you pay

Interest only or Principal & Interest. Rates will eventually

increase.

Tips to avoid risk• Will you need cash in the short term? If so,

property may not be the best investment.

• Property investing is long term and investors

are forced to hold asset longer to be able to

make a significant gain.

• Speak to a qualified financial expert.

Risk 8: LiquidityIs the ease of being able to gain access to the money you have within an

investment. More difficult to get your money out compared to other

investments such as shares.

Risk 9: Property drops in valueProperty is worth less than what you paid and you can’t even sell

it to cover the loan repayment.

Tips to avoid risk• Research target suburb and ensure it has shown there are signs of future

capital growth.

• Diversify portfolio across multiple locations and markets.

Risk 10: Buying the wrong propertyCan lead to negative cash flow as well as little or no capital

growth.

Tips to avoid risk• Research, research and more research!

• Focus on the numbers.

• Don’t buy on emotion.

• Seek help and assistance.

Property Data - Pro Membership

Property Data - Pro Membership

Property Data - Pro Membership

Property Data - Pro Membership

Property Data - Pro Membership

Property Data - Pro Membership

Property Data - Pro Membership

Property Data - Pro Membership

Property Data - Pro Membership

Property Data - Pro Membership

Strategy - Risk Assessment

Strategy – Renovations

Pros

• With the right changes, can create significant equity uplift over a short period of time

• Increase rental income after renovation

• Renovate an existing property – smaller investment required than buying a new property

Cons

• Can be costly – unforeseen issues can arise

• For DIY investors with no experience, costs can blow out

• Time consuming

• If renovation takes longer than expected, holding costs & missed rent will have a negative impact on return

• No guarantee on return –equity uplift or rental

Strategy – Renovations

COBURG, VIC

• Purchase Price - $850,000 on April 2015

• Sold Price after renovations - $1,525,000 on June 2017

Strategy – Subdivisions

Pros

• Can create substantial equity or cash over a short period of time

• Take advantage of under utilised land

• Sell one block & keep the other - loan could be fully or nearly paid off

Cons

• Can be costly

• Council regulations & restrictions

• No guarantee on return

• Time consuming

• Reduced space – may not be as appealing to buyers

Strategy – Subdivisions

NORMAN PARK, QLD

• Purchase Price - $875,000 on March 2013 for 810m2 block

• Sold Price after subdividing 1 lot into 2 lots & building new houses:

• Lot 1 (5 bed, 3 bath house on 405m2) – sold $1,310,000 in April 2014

• Lot 2 (5 bed, 3 bath house on 405m2) – sold $1,335,000 in June 2014; then sold again for $1,423,000 in Nov 2015

What type of investor are you?

Pros• Save you money

• It can be a huge amount of fun

• You have the opportunity to buy below market value

• You can time the market

• You have access to every property in New Zealand

• It can become a passion for you

• Learning experience

Cons• You can make mistakes

• Each mistake can cost you time & money

• It can be time consuming

• It can be mentally & emotionally draining

• You only get access to on market listings

• You’re not in the industry on a day to day basis

• More likely to buy in boom & bust areas

• More likely to invest with your heart than your head

DIY Investing

What type of investor are you?

Hands Off Investing

Pros• Save you time

• Develop a property investment strategy

• Experts look out for your best interests

• Research & experience can save you money

• Work inside the industry every day

• Make buying property simple & stress free

• Deal with real estate agents, developers & builders on your behalf

• Access to off market opportunities

Cons• High fees (buyers agents

generally charge 2-3% of purchase price) + engagement fee

• Can be expensive, charge you for every property you purchase

• Some buyers agents won’t let you have a say in what you purchase

• Some buyers agents are actually property marketers

• Some property educators teach you the theory but you won’t put it into action

Are you ready to take action?

Option 1: For DIY Investors

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Option 2: For Hands Off Investors

Premium Membership

• Complete end to end solution to help you purchase profitable investment property

• Team of industry experts working for you

• Achieve the outcome without the stress or hassle

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