According to many entrepreneurship and business books, there are hundreds or even thousands of contributing factors why a business succeeds or fails. Most of those factors can be put into three categories: namely 1) practices of the entrepreneurs and/or their managers, 2) the attitudes and the habits of the owner, and 3) the basic characters of the business opportunity, which indicate whether or not it is worth pursuing.
What is an Investment Property?
It is a property not occupied by the owner, normally purchased purposely to generate profit through rental income and/or capital gains.
Simply put, it is when you own a property and offer it up for rentals or lease with the goal of making a profit out of the investment.
Advantages
Property investment is believed to be a very secure form of investment for two reasons.
One is that property investment has the potential to both earn its owner or investor money. This happens through capital growth, as the property increases in value. Another is through rental returns, which can either be the main income of the property owner, or just a supplemental income.
Two, property investment will save the investor money. This can be through tax benefits where much of what the investor spends on his property can be claimed back as a tax deduction later.
What are the risks of property investment?
Is the investment worth pursuing? Just like any other business endeavors, there are a lot of risks involved when investing in property. Knowing what they are will definitely help you – the investor, prepare and meet these risks.
Additional Set-Up Costs. These costs are on top of the repayments of the investment loan. Covered by these costs are stamp duties, legal and conveyancing fees, property inspection and valuation fees, and loan application or establishment fees.
These are in addition to the deposit amount, and have the potential to stretch your cash flow. These costs have to be part of your budget from the very beginning.
Additional Ongoing Costs. Ongoing costs are used to maintain the property in “tip top” shape. It is your responsibility, as the landlord, to maintain the investment property, by shouldering any repairs that may be necessary. You will also pay for council and water rates. The property, including all the fixtures and/or fittings, should also be insured.
When rental income does not exceed the outgoing costs. This means that you – as the investor – should cover the difference from your own funds until the end of the financial year when you will be able to claim back your investment costs.
You may also have to cover all of the expenses when there is a gap between old tenants moving out and new tenants moving in.
The possibility of the decline in value of the property. A lot of factors bring this about. Most can not be predicted, but it helps when it is considered, so that you, as the investor, can resort to actions that will buffer its negative effect. This normally happens when the property bought is overvalued, or if the area in which the property is located suffers a slump.
No easy access to the investment funds. If there comes a time and a need to access the cash in the investment property quickly, this can be very troublesome. This is because it’s normally not that easy to liquidate an investment with the sale and settlement process. Even if the need is simply to access equity in the investment property, there is still need to wait for valuations to be conducted and paperwork to be processed.
Having laid down some of the things that can make or break the business of property investment, can you now safely say this is what you want? Think hard and think well.