The central bank has kept the cash rate on hold at a record low of 2 percent. CommSec Chief Economist Craig James expects the RBA to stay on the sidelines for quite a number of months.
Half-empty or half-full? Property investors should prepare for both.
REAL estate investors haven’t had too much to worry about in recent years.
Interest rates have been dropping and, despite some annoying independent rate rises by lenders last year, look like staying low.
EXPERTS TIP NO RATE MOVEMENT UNTIL 2017
However, success in property investment means keeping your eyes open about what can go wrong. So grab that half-empty glass and think how you would handle the following scary situations.
1. A BIG RATE RISE
While Reserve Bank governor Glenn Stevens said this month he expected rates to stay low and believed banks had little reason to lift them independently again, stranger things have happened. The best way to prepare is to build a buffer in your personal finances — often your mortgage — and try to pay more than the minimum amount.
2. TAX CHANGES
Fresh fears were stoked last week by the Labor Party’s plan to scrap negative gearing benefits for all existing homes and water down capital gains tax discounts from 50 per cent to 25 per cent. The good news for existing investors is that these new rules would only affect property purchases from mid-2017. Tax laws will continually be tweaked as the government searches for ways to save, and the biggest financial impact will probably be on wealthier investors who are better-placed to afford it.
3. EXTERNAL FINANCIAL SHOCKS
Our wobbly economy raises the risk of being hit by unemployment — which is probably the most devastating thing that could strike any investor who has borrowed to buy property. You can’t guard against losing your job, apart from being conservative in your borrowing and always asking yourself what would you do financially if the worst happens.
4. MISSING RENT
Landlord insurance specialist Terri Scheer Insurance says unpaid rent is one of the key worries that keep landlords awake at night. Executive manager Carolyn Parrella says if this happens it needs to be addressed quickly. “If the tenant falls into arrears, a breach notice should be sent for non-payment of rent,” she says. “If the tenant still doesn’t pay rent after receiving the first notice, a second notice should be sent to terminate the lease and request vacation from the property.” Check your local laws.
5. EMPTY PROPERTY
Having an unoccupied property can strain any investor’s cashflow, but you can lower the chances of this happening by presenting it well, Ms Parrella says. “Items once considered luxuries are now standard requirements. Not offering these comforts can make a real difference to the property’s appeal and may impact the amount of income the landlord earns.”
6. NAUGHTY TENANTS
Trashed properties are often out of investors’ control, so don’t take it personally if an unruly tenant smokes, smuggles in pets or even uses your property as a drug lab. “Tenants involved in illegal activity go to great lengths to hide their activities,” Ms Parrella says. “Routine property inspections can help mitigate these risks by identifying problems before they escalate.”
7. FALLING PRICES
House prices move in cycles, sometimes excruciatingly slow ones, but history has shown that people with patience and good quality property have always done well in the long run. You only realise a loss when you sell.
Things can go wrong with property investment, just like other areas of our lives. If you know how you will react, it will be less painful when it goes pear-shaped, as it probably will at some point.
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