What If...

I am always asked: “What if something went wrong with my property investment?”
Following is a list of the eight most common what if's.

1     What if I can’t find a tenant for my property?

Short term vacancy is a normal part of property investment. To cater for vacancies between tenants, your budget should include a ten percent vacancy factor. This means you assume that for 47 weeks per year you have a paying tenant. Long term vacancy is generally created in one of two ways and is avoidable.
(1) The property becomes uninhabitable due to damage. In this case, your Landlord Protection Insurance will meet the rent while the property is repaired and new tenants are found.
(2) You are trying to achieve a rent in excess of what the market will bear. Your property manager will ensure the property is positioned in the market to maintain maximum occupancy.

2      What if I lose my job?

If you lose your income, then your contribution will be the amount left after the rental income and deductions, not the total loan amount. You should always seriously consider some form of Income Protection Insurance.

3      What if interest rates rise?

Being a long term investment strategy, you would expect interest rates to rise and fall. Planning for long term it is best to fix a term rate suitable for how long you wish. If you borrow in times of high rates then allow yourself the flexibility to reduce your rate when they drop again. Alternately if you invest when rates are low then a longer fixed term is more desirable. (You may notice a period of low interest rates is usually followed by an increase in property prices).

4      What if property values drop?

Property values drop from time to time, just as they increase. Think of the value of your grandparents or even your parents’ property and what they paid for them all those years ago and what they are worth now. Long term is the name of the game for successful property investment. If you are only in it for a short period you are a speculator not an investor and your strategies will be different.

5      What if we upgrade and buy a new property and rent out our old home?

Sure you can and many people do. Just remember, if you borrow against your old home to purchase your new one, the debt is non- deductible as the purpose of the loan is to buy your principal place of residence, not a rental property. Also keep in mind intent is very important when purchasing investment property and intent to try and pull the wool over the eyes of the IRD is an unnecessary folly.

6      What if I don’t want to, or don’t have the time to manage my investment?

The use of an effective Property Manager will save you time, money and tenancy headaches. They will take care of some or all of the duties associated with tenants; i.e.: maintenance and repairs, screening of tenants, rent collection, advertising, regular property inspections and phone calls in the middle of the night instead of you. And if they don’t collect the rent they don’t get paid.

7      Why hasn’t my Accountant told me everything about investment property?

That is a little unfair on your Accountant as they tend not to be overly proactive to show you investments. They are specialists in their field of ‘Accounting’, but are generally not specialists in property investment. Accountants who are good at investment property in my experience are the exception not the rule. You will how ever need a good one to help you once you purchase a property.

8      What if you don’t invest?

This is a vital question to ask, because if you don’t do anything then nothing will happen. Statistically we know 79% of the population retires on less than $17000 per annum and only 1% retires on $40000 or more. You get to decide now where you will be then and are wholly responsible for the outcome.

Contact me today.

Leveragethis.com - Terry Saltnes - terry@leveragethis.com - +64 27 2956 929
Christchurch - New Zealand