Buying a rental property is a long-term strategy for financial security. However, there are some common pitfalls that can cost you time and money, reducing your profits and your freedom.
To succeed as a property investor, you have to be an expert at identifying and assessing risks in real estate. We have put together this guide to rental property risk assessment to help you identify the issues you might face and to show you how to keep things on the right track.
1. Make sure you are buying a good investment property
Buying an investment property is a major business decision that has to be made with a calm, rational head. It is important to carry out your own rental property risk assessment before you make a decision to purchase.
This can involve a number of steps:
- Have building and pest inspections carried out to check for any problems.
- Access strata reports if you are buying an apartment or townhouse.
- Research rental assessments of the property and the local area.
The more knowledge you have, the more likely you are to make a good decision.
2. Be aware of property management insurance issues
As a property owner, you will have purchased building and contents insurance. Building insurance protects the actual structure of the property, while contents insurance covers all the items you own within your rental property, such as carpets, curtains, appliances and furniture.
However, this is not always enough to protect you against tenant risk. It is highly recommended that you take out landlord insurance and keep your payments up to date. This will cover you for any damage done to the property by a tenant.
3. Stay on top of property maintenance
Your investment property should always be kept in a good state of repair. This will improve the tenant’s quality of life, encouraging them to stay longer and saving you money on advertising fees or having the property left vacant for any period of time. It will also save you money on repairs in the long run as maintenance issues will only get worse if they are not dealt with quickly.
4. Have the property inspected regularly
You need to inspect your rental property regularly or have it inspected for you by a reputable property manager if you choose to engage one. It is important to make sure the tenant is keeping your property in good condition. Regular inspections also give you the chance to assess any maintenance issues that might need fixing as the tenant might not be aware of them or might not have told you about them.
5. Be aware of market conditions
If you want your rental property to provide you with maximum returns, it is important to keep up to date with real estate market conditions in your local area. Is the amount of rent you are charging in line with local averages for the same type of property? However, think carefully about rent increases if you have a tenant you like and trust. A small increase might not make a difference to you, but it could make a lot of difference to them.
It is also important to make sure signed agreements do not lapse so you and your tenant are both protected.
If your property does become vacant, you need to be aware of seasonal fluctuations. For example, the Christmas period is a notoriously bad month for renting out property, so you need to have enough money to cover you in case it remains empty for a short while.
6. Know your rights and responsibilities
As a landlord, it is worth your while keeping up with all developments in tenancy laws. This will make you certain of the rights you have, as well as give you a thorough knowledge of your obligations. If you and your tenant can both stick to your sides of the bargain, this makes for a happy and rewarding relationship.
Find out more about managing risk in real estate investment
If you are time-poor or new to property investment, it can help to have a reputable property management company on your side. They know the business inside out and can help you mitigate a lot of the risks involved in investing in property.
If you would like more advice, please contact us – we will be happy to help.
