Real estate cycles come and go, but one fact always remains true: property investing is an inexact science.
As much as we would like to believe we are able to control every part of the process, the reality is that investing in property is rarely a bump-free process.
But you can minimise your risks, which includes having clear strategies to help you deal with unexpected situations and setbacks when they arise.
Getting in front of the problem
As a property investor, the last place you want to end up is being forced to sell a piece of real estate – often at a steep discount – to get out of a jam. This is where your risk minimisation strategies come into play.
In a nutshell, these are your ways of planning for the worst-case scenario so that if it eventuates, you’re never caught off guard and forced into a position of vulnerability.
When you’re in a vulnerable position you are usually stressed out, frustrated and desperate to find a solution. When you feel this way you’re not clear headed and making positive decisions, which is why people in this situation often end up making irrational decisions that they regret later.
Facing your fears – and overcoming them
In my mentoring program, I ask my students to write down every single fear they may have about property investing, from not being able to afford your mortgage repayments, to dealing with tenants who trash the property.
Then I ask them to try to come up with a coping strategy for every possible situation that could arise. This is a crucial and valuable exercise as it helps to prepare for the worst while expecting the best.
Part of your risk mitigation strategy might be to put aside money for those rainy days when your investment property may require maintenance, or is untenanted for a few weeks while you look for new tenants.
I keep a bucket of money in an account just for such occasions; it’s my property buffer account. That way, if for some reason the mortgage payment isn’t covered by rent due to it being untenanted, then I have money set aside to deal with it.
Having this buffer gives me peace of mind knowing that should anything go wrong, I will not run the risk of losing the investment property.
You may decide to deposit $25 a week into a separate account – topped up each year with your tax return – to build your buffer account and give you some financial ‘breathing space’ to deal with these types of emergencies.
This is just one of many strategies I use to minimise risks; others include having qualified property managers to handle my properties and also obtaining good quality landlords insurance policies to protect my investments.
It’s been my experience that if you can’t overcome a fear by developing a workable strategy, then it may be best not to proceed with the purchase.
You need to feel comfortable at all times with every aspect of your property investment, as there’s no point in losing sleep over your quest to grow your wealth.
Helen Collier-Kogtevs is the Managing Director of Real Wealth Australia, a leading education and mentoring company for real estate investors. Not only is she a highly successful property investor and an educator, but also a best-selling author, and a philanthropist.
Helen is particularly passionate about helping people, especially people who are keen to create wealth and make a difference in their lives, and she has been mentoring thousands of new and experienced investors in their pursuit of wealth creation through property.
She founded Real Wealth Australia to mentor investors create wealth and financial freedom by focusing on helping them build an investment strategy to fit their individual goals, rather than focusing on one particular investing method using her successful “10 Properties in 10 Years™” system.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.