Investing in property, whether commercial or residential, comes with inherent risks. On one level, this risk is a good thing, as there would be no point in investing without it. However, it is also important to realise that risks can be assessed and calculated, and doing so can help you to secure a healthy financial future for you and your family. To help you navigate risk and understand what kind of properties you should be looking at, we’ve put together a few tips for mitigating risk.
The valuation of property can differ widely between when you buy the property, when you sell the property, or when you try to refinance the property. Indeed, the industry is sensitive to market conditions and valuations can fluctuate considerably. The risk of losing equity is greater for those who purchase a property at the asking price or above, as well as those whose properties are undervalued during the refinancing stage.
To mitigate this risk, therefore, it is a good idea to buy a property below market value. Look for a property that is in good condition and that you will be able to negotiate down to less than its market value. Or, alternatively, look for a property that needs work done to it. If you have the time and resources, you can quickly add considerable value to it through repairs and a little interior design.
If you are not considered and cautious when it comes to growing your portfolio, you could end up with an unmanageable amount of debt that will be passed on to younger generations. To mitigate this risk, it is important that you check the debt-equity ratio with every property you purchase.
It is also important that you take out a good life insurance plan in case any debt needs to be passed on to members of your family.
One of the biggest headaches for investors is when a tenant cannot pay their rent or, indeed, refuses to. Whilst it is not easy to predict the future, you can mitigate this risk by maintaining strong lines of communication with your tenant and managing the relationship well. If rent has not been paid, do not immediately go on the attack. Rather, try to find out the problem and work out a payment plan. It is also a good idea to ask for a guarantor when the lease is signed.
If you’re a budding investor looking for commercial loans in Australia, get in touch with Global Capital today.
