No one can ever deny the fact that property investment is considered to be amongst the best for making money. There are multiple ways of purchasing property and owning it, it also serves as a source of your rental income. But, there is no hard and fast rule that every investor who ever enters this business would be able to deal with the market in a competitive manner, though property investment is still the safest among all options.
Like all other investments options, property investment also comes with certain risks attached. You, as an investor should have complete knowledge about those risks and the ways to overcome them. Whether it is an experience or new investor, market knowledge is crucial for both. Be it Melbourne, Australia, Canada or the entire world, risk factors prevail in all corners.
This article will lay out the risks in property investment and ways to overcome them.
1. The market is unpredictable:
There are a lot of property investment companies which talk about this unpredictability in order to advice another small property investment company. Although talking about the recent years, the market has been relatively positive, but then again no one can guarantee that for how long it will stay that way. The market of property investment is quite known for the oncoming ups and downs. The economy holds a huge importance in the increase or decrease in the value of properties.
The unpredictably of the market can be realized from the possibility that, if an investor has purchased a property at such a time when the demand was high for investments, there is a very high possibility that he/she sold it off at a price lower than the purchase, resulting from the fall in the market.
In order to avoid this risk, you have to consider all possibilities while entering the business of property investment. You should always keep yourself updated about any possible changes to occur in the market, in the near future. Make yourself ready before time and take help from advisors to forecast the market trends. This way you will be able to purchase and sell the property at a risk-free time.
2. The locations factor:
In property investment, location matters a lot. This is an advice you will hear from property investment companies all around the world, be it companies Melbourne, Australia, China, Russia or some other country. Whenever you plan to invest in property, always keep the factor of location on the top of the list. There are many ways a bad location can affect your investment.
It is location, which is going to determine the supply and demand. For you, a certain location may be perfect or comes with a cheap price, but it may not be right with regard to a positive cash flow. There are some locations which look good but when it comes to the job market and population growth, it tends to fall short. You would not want to risk that at all.
In order to solve this problem, consider all factors while exploring a location. Don’t fall for cheap prices and think long term. Avoid locations where the crime rate is relatively high, the job market is tight; there is no chance of population growth etc. This is what the international property investment trends advice Melbourne, Canada, Australia, China, Russia and investors belonging to every country in the world, to consider the factor of location.
3. Cash flow negative:
In property investment cash flow refers to the amount of money which is received by the investor in the form of income/profit, once all the expenses, taxes and salaries have been paid off. Another major risk which is attached with property investment is the possibility of your positive cash flow turning into a negative cash flow. A negative cash flow means that the taxes, expenses, mortgage payments and other operational costs are higher than what the investor is earning.
This possibility only arises when the investor has not done enough research on the property investment market and just goes onto purchasing a property. If you want to get rid of this risk then the only way to do so is, to properly calculate your expenses and income. You should know what rate of rent will be charged by you and the amount of money needed to be spent on the property.
Make sure that the property you have chosen after considering the above-mentioned factors should be in a location which will end up yielding a cash flow which is positive.
4. The risk of vacancy:
When you buy a property, you cannot hope for a complete occupancy or immediate profits. This is because, in property investment, there is a factor of high vacancy which serves as a risk. It is a nightmare for property investors because it leads to a negative cash flow, by affecting the income generated from rent.
Everyone is already aware that tenants serve as a major source of rental income in property investment. So for those investors for whom rental income is the only source which allows them to pay off their debts, taxes, insurance and other operational costs, high vacancy is a huge risk.
In order to avoid the occurrence of this risk, investors should buy properties in such locations where the demand curve is in their best interest. There are some locations which have been given the title of a safe location. These locations include crime-free areas, areas with shopping malls, good transport facilities and availability of schools for kids. Therefore, it is better if you invest your money in properties situated in such locations.
If you are having a hard time searching for such an area then you can always take help from investment companies who are willing to help. It can be a Melbourne company or whatever the company is in your country.
If you ever wonder about the question as to what are the risks of property investment or how can one overcome them, just skim through this article and you will find the answers.