Puzzle Finance Blog


Home in on investment hazards


YOU'VE finally found the ideal investment property, mortgaged yourself to the hilt and secured a good tenant - but it's not quite time to sit back.

Don't forget to protect your new investment both physically and financially.

With a mix of insurance, good management and maintenance, you can almost wrap your property in cotton wool and ensure you have a contingency plan or compensation for almost every bad situation.

Just how much cotton wool you need is up to you but for most investors, off-loading a bit of risk is always worthwhile.

FINANCIAL

As any savvy investor will tell you, your asset is only as good as its income ability - until you can get your hands on the capital gain, that is. Securing a steady and reliable income is probably the first hurdle for property investors.

Assuming the rent is flowing, property experts say the next step is to ensure you have an emergency stash.  
"Definitely have some money set aside as cash, or preferably in a line of credit or offset account, to act as a financial buffer for a rainy day," Metropole Property director Michael Yardney says.

"This will cover things like a negative gearing cash-flow shortfall, potential increases in interest rates, repairs and any unforeseen expenses."

Other ways to protect your financial position include insurances, he says, such as landlord insurance, which covers a default in payments or damage caused by a tenant.

Resi Mortgage chief executive Lisa Montgomery also recommends insuring yourself - as your income will be vital to protecting your financial position and investment asset.

"The best way to know if you are adequately insured is to ask yourself how you would cope financially if you were unable to meet your repayments and then look at how you can protect yourself if that happens," Montgomery says.

Income protection as well as disability, death and mortgage insurance can help pay out a mortgage and cover ongoing costs, she says.

PHYSICAL

Regular maintenance is not only best practice for the state of your building but having a well-looked-after property will also reward you with a respectful and happy tenant.

According to investment property experts Portfolio Management Services, an attractive property will attract good tenants and help reduce costly "tenancy churn".

In addition, keeping the property in good order will be a good selling point when the time eventually comes to sell.

"Having a professional property manager can save thousands of dollars by protecting your investment and it also aids in terms of maintaining your investment and adding value to make sure you're getting the best return," PMS acquisitions manager Phillip Almeida says.

"Routine inspection reports conducted twice a year will advise you of any ongoing maintenance that must done. We generally allow for a 5 per cent maintenance provision of the total annual rent to budget for this type of work."

Landlord insurance specialist Terri Scheer Insurance recommends every property owner should put together a "risk management plan" as part of their investment strategy.

"Damage by tenants, loss of rental income and legal liability issues are just some of the risks faced by landlords that could be very costly," Terri Scheer manager Carolyn Majda says.

"Regular inspections can make it easy for landlords to quickly identify if and when any damage to the property has occurred, if there is any maintenance that may need attention, or if there are any issues that may pose a legal liability risk."

CHOOSE WISELY

Resi's Montgomery says one of the best ways to protect your investment is to buy wisely from the start.

"Property investing is usually a long-term strategy, so you want the property to stand the test of time. It's important to weigh up the property as a whole when you are making a purchase - especially if you are looking for a set-and-forget purchase," she says



Posted by Karina Barrymore - News Limited on 30th September, 2012 | Comments | Trackbacks
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