5 Investment Property Nightmares (and How to Solve Them)

Many Australians are hastily jumping into property investment, only to find themselves in disastrous situations as a result of cutting corners and poor planning. Here's some expert advice to help you turn around five of the worst property nightmares. 

It’s no secret that property investment can be risky, but the old adage is true; the higher the risk the higher the return, which is exactly why so many people continue to venture down this path.

Unfortunately, many Australians are jumping in, only to find themselves in disastrous situations and being forced to sell early. It generally takes five years to start seeing progress on your mortgage, yet as many as 1 in four Australians sell their investment property within just one year of purchase. Selling your property early should be the last resort if you find yourself in a difficult situation, and there are certainly proactive ways to avoid this happening altogether. 

Investment real estate expert, author and Dream Design Property Founder Zaki Ameer, shows us how to turn around five property nightmares.

1. Take ‘off the plan’ off your plan

Buying off the plan means purchasing a property that has not yet been built. This type of investment may seem enticing at first, as you will have a brand new property at the end. However, there is no guarantee of the quality or of the final property value, and they are often initially over valued by the developer. Yumi was a client that came to me after having purchased an apartment off the plan. She paid $443,000 for her investment but once construction was complete the property was only valued at $337,000 - after she negotiated with the bank to secure a higher valuation! Avoid off the plan purchases completely.

2. Jobless, down and out

Another unfortunate situation that can arise is if an investor loses their job and secure income while owning multiple investment properties. In this case the investor will most likely be unable to keep up with loan repayments and be forced to apply for loan extensions, costing potentially thousands of dollars in unforseen fees. Always set aside three months worth of mortgage repayments per investment property; this will give you a safety net to fall back on should your income flow change. It’s better to have this cash for emergencies than to use it to pay extra loan repayments.  

3. Nasty exit fees

The historically low interest rates have driven a record number of investors to opt for fixed rate bank loans; exposing them to penalties should they make an early exit. A common occurrence that is not often spoken about is the impact divorce has on investment properties that have to be sold during the fixed rate period. In this circumstance both parties are forced to pay thousands of dollars worth of exit fees. Always keep careful records of the properties purchased so that you can avoid having to sell the investments on the basis of splitting assets through a relationship breakdown.

4. Dodgy builders

Renovating can add big value to your property fast, but beware; it takes only one dodgy builder to land you in hot water. Some builders manage to get away with working without licenses or insurance and often unbeknownst to their employer. If this were to be the case when someone was injured on site, there would huge legal and financial repercussions. I have also seen appalling renovations completed by crooked builders where roofs have leaked and caved in soon after completion, leaving the owners to pay for steep legal fees and repairs. When selecting a builder, always check their current credentials and insurance policies, and inspect any other recent work they have completed.

5. The tenants from hell

Most property investors have had at least one tenant who has defaulted on their rent and many others who have experienced tenants who purposefully damage the rental property. What separates the nightmare scenarios from the rest is the crucial enlisting of landlord insurance; this will save you thousands in potential unforseen costs down the road. Bad tenants are unfortunately common, which is why you should always invest in landlord insurance.

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3 comments
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Posted by Jackie586Report
Bad tenants is very common problem among landlords. And in most cases that is the consequence of incomplete tenants verification.That’ why I don’t get tired of repeating that proper renters screening is a must, if landlord wants to secure his property and to make money on it. I want to share the article https://rentberry.com/blog/screening-prospective-tenants. It describes all tools of this process that includes running of credit and criminal reports, conducting interview with applicants and gathering references from their previous landlords.
Posted by SecretReport
Great post! When it comes to buying property, investors are often faced with difficulties that have the potential to disrupt the purchase but these points can be implemented to avoid this. Thanks for sharing this useful stuff
Posted by M93Report
With regard to Landlord Insurance, this does *not* cover cleaning and cleanup, rubbish removal, etc. In addition, the tenants can scrape and scratch every wall, ceiling, and floor, and the insurance company will call this "fair wear and tear". Imagine having to repaint most internal walls of your house whenever a tenant moves out ? This happens routinely. If you are *very* lucky, the bond might cover the repainting of a couple of walls (if there is any left after taking into account rental arrears, cleaning, rubbish removal, etc). Yes, it IS that bad, and anyone who says otherwise is clueless.
If your house has giprock / plaster walls, then this soft material will not stand up to any form of rough treatment, and expect damage and so called "fair wear and tear" to be greatly magnified.
Another item that people should be very wary off are downturns in the market. Property prices in regional and rural areas have been hammered over recent years. A "mansion" down the road from me was put on the market for $2.8 million in late 2008, which seemed like a fair price back then. It is a truly beautiful house. But, 7 years on, it still has not sold - it is still on the market today. The asking price is now $890,000, and I am sure they will take a hard offer a less than this.
So, beware of downturns. The old rule of thumb that property prices double every 8-9 years seems to have failed, at least in rural and regional areas.