How to Overcome Newbie Jitters When Starting Property Investing
It’s natural to have a few nerves when starting property investing. With so much speculation and “expert opinions”, it can be easy to feel a bit out of your depth. This is only compounded by the growing popularity of real estate as an investment tool, which brings more competition to the industry.
There is no definitive ‘real estate investing for beginners.’ Everyone has different opinions and strategies when it comes to building a property portfolio and how to succeed. There are also those who’ve had negative experiences.
It’s critical that you aren’t deterred from others misfortune, but rather learn from these experiences and figure out what not to do when investing in property. It’s really important to draw on a wealth of knowledge and resources.
Knowing some of the investment property basics as well as the benefits of property investing is a great way to settle the newcomer nerves. Here’s a look at some reasons to invest, with in an insight into the risk-level of property investing.
How risky is property investing?
Naturally, there is always a risk when looking to invest your hard-earned dollars. While the fluctuation of the property market pricing is a great way to build wealth as an investor, it also exposes you to the risk of dips in prices.
This is what’s referred to as ‘market-risk’. The real estate market is cyclical, with ups and downs that mean people try to ‘time the market’ to get the advantage. But it’s important to understand that there are ‘markets within markets,’ and the cycle of each varies at different times.
Understanding a property or suburb’s area can help minimise the risk. This means that there is always somewhere to buy, if you know where to look and how to analyse the data to make an informed choice.
Generally speaking, property investing is relatively low-risk. The real-estate market is less volatile than the stock market, as stock prices move up and down much faster than property prices. Of course, there is always some element of risk in investing your money.
But stock markets are known to fluctuate based on a range of external factors that can often be difficult to predict.
Investing in property can also help minimise risk in your investment ventures, as it allows for diversification potential. Often when stocks are down, real estate is up, meaning the addition of property to a portfolio can ensure a higher return per unit of risk.
This is why some invest in both, diversifying their assets and improving their chances of success.
Minimising the risk of your investment
Diversification and Leverage
Expanding your property portfolio is also a great way to diversify and lower the risk involved in property investing. Buying an investment property is a great first step, but buying more across various locations significantly lowers the chances of losing money.
To do this, you’ll need to diversify your properties across a variety of high-growth locations. And remember, there are 15,000 suburbs in Australia, so there are no shortage of options. Having a handful of properties means you are better protected.
If one area doesn’t do well, there is still the potential for growth in other investments.
Investing in real estate also allows investors the power of leverage. This means using debt to finance larger purchases than you’ll necessarily have available cash for. Most mortgages require a 15-20% deposit, with some requiring as little as 5%.
This means you can control the property and equity at the time of purchase. This allows investors to purchase multiple properties quicker, expanding their portfolio and diversifying their assets.
Many people think that saving a deposit and finding the right property is most of the work. But even after buying your first property, there is still risk involved. Owning a rental property means having to ensure tenants are living in the house and paying rent.
If the property is vacant, you’ll be losing money. While it’s natural to have periods of vacancy in the property cycle, you’ll want to minimise these to maximise your rental profit.
Remember, keep your tenants happy and they’re more likely to stay for longer periods of time. Don’t just think about the property as an investment tool, but rather a place for someone to call home.
Consistency with general upkeep and maintenance of the property is really important to minimise vacancy. It’s best to address any issues with the property as quickly as possible. Letting the little things turn into big things is a quick way to frustrate and lose the tenants.
Get repairs underway when an issue is raised to avoid turning your tenants away. Avoiding maintenance and upkeep can result in that problem getting worse and costing you more down the line. It’s also a great idea to focus on areas such as the kitchen and bathroom, which can suffer wear and tear quickly.
It doesn’t need to be significant maintenance either. Little things like fixing broken door handles, leaking taps and removing rust and mould can go a long way in the tenants eyes.
Interest Rate Risk
Rising interest rates is a concern for many investors, with fluctuating interest rates increasing the monthly repayments for those variable-rate mortgages. A simple way to minimise this risk is to select a fixed-rate mortgage and maintain positive cash flow.
The latter can be done by owning multiple properties to increase rental income and minimising vacancy periods.
It’s also important to negotiate for the best interest rate offered by different lenders. It’s a good idea to try and renegotiate with a current lender first, as changing lenders too often may impact your credit rating.
The Bottom Line
It’s important to understand that no investment is entirely risk free. But it’s about managing those risks by carrying out the proper due diligence and doing the little things to get big rewards later on. It’s natural to feel nervous when breaking into property investing.
But property investors aren’t all experts from day one. So many of those who’ve had success in property investing started out with very little understanding of the industry.
And there’s no reason why you can’t succeed as well. It’s about overcoming these nerves, self-education, managing expectations and taking that initial leap forward to start your property investing journey.