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Some of the Risks Involved Investing in a Property

While there are more millionaires and multi-millionaires have made their fortunes through property there are still risks involved in investing in property.  This article brings to light, capital gains, supply and fall and demand, cyclical nature of property values, town planning laws, gearing and many other interesting comments. Hope you enjoy my article.

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RISKS OF INVESTING IN PROPERTY

Direct investment is residential property, like all investments, involves a number of risks. If these eventuate, your income might be lower than expected. There may even be none. In addition, the capital value of your investment could fall.

The key risks of investing in property are outlined below:

  • The property purchased may not provide the income or capital gains the asset was expected to produce.
  • There is a risk that your property may, for periods of time, lie vacant & hence generate income. Maintenance & repair costs are the investor’s responsibility & can vary, and at times be significant. Such costs are sometimes recoverable from rental bonds or under insurance policies.
  • There are a number of factors that affect the general property market including increases in  supply & falls in demand; the cyclical nature of property values; increases in taxes & operating expenses; overall economic conditions; demographic changes; changes in town planning laws; casualty & condemnation losses; environmental risks; regulation on rents; detrimental new developments in area; increases in interest rates; similarly, inflation & changes to bank funding policies.
  • Gearing increases the volatility in the value of your investment. In the early stages of residential investment, a significant fall in the property’s value may see balances fall to less than the total amount of borrowings.
  • Increased in interest rates often increase the cost of borrowings.
  • Changes in laws or their interpretations including taxation, superannuation & corporate regulatory laws, practice & policy could have an impact on your investment. You should seek professional tax advice before investing in residential property.

 

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