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Invest for income (cash-flow) to pay your bills or invest your day job earnings in negative geared properties by speculating for capital gains, where to draw a line between assets, liabilities and investor’s risks?


Asset or Liability

Property Investor’s Risks and Liability

Your property - asset or liability?


As property owner you cannot easily walk away when liabilities take over your life. Liability stress is not the first thought in people’s mind when investing in properties. Instead of putting money into your pocket, a liability costs you money. All property related expenses like rates, levies, insurance, maintenance/repairs and of course the costs of finance like interest payments for the mortgage are liabilities.


In contrast an asset adds something to people’s material prosperity (wealth), or money in people’s pocket, right? If you invest in properties for renting out to tenants, then you might think it is an asset. However, you may owe the balance of your mortgage to the bank and then again it is your liability.


Well, it comes down to financial education. You can invest for appreciation (capital gain investments) or for cash-flow (yield investments). You can run an investment business for income to pay your bills or invest your day job earnings in negative geared properties  speculating for capital gains, or in combination. However, for succeeding you need to draw a line between assets, liabilities and risks. Needless to say many experienced investors failed dealing with their assets and liabilities.



Liabilities and risks


Investing in properties has never been easy. If it was, we would see more people doing it. In contrast to other investments you are liable based on ownership held accountable for anything property related. That includes everything in connection with landlord’s activities should something go wrong with rental properties. So what are the odds to consider as property investor?


· Some liabilities may be out of sight especially when meeting the engaged accountant or tax-agent once a year to file the income tax return. Financial and tax administration should never be out of investor’s mind. In the event of a tax audit the investor is liable for the financial statements.

· Many investors use for asset management companies and trusts and fulfil their obligations as directors or trustees. The more senior they are, the more accountable they are held for mistakes under The Companies Act or the Deed of Trust.

· Although an investor engaged service agents like a property manager for managing rental properties or tenancies, the business owner still has to take on the responsibilities. In some respects the investor is vulnerable meeting legal requirements, council rules and regulations as well as complying with the Health and Safety Act reform bill being enforced since April 2016.

· High geared investors carry the risk that a bank may call in a loan due to misunderstandings, missed loan re-payments or drop in property values (equity) held by the bank as security. If the market drops steeply, income and equity will drop, too.

· It is hard to enforce civil law as here illustrated.  For instance a tenant abandoned the tenancy with rent arrears and damage to the property. The landlord has been successful at the tenancy court, but is unable to enforce the court order, who is liable?

· A renovation project is on hold, the builder walked off the job and no remaining funds make it difficult to hire somebody else, what are the options?

· Investors lost their portfolio in relationship battles, lawsuits, disasters—what went wrong just from the beginning, considering asset protection structures?

· Unlike most families a property investor must prepare and discuss the event of relationship break ups by choosing  the right ownership type for the title (joint or tenancy in common) and an exit strategy.

· Often forgotten, the risk of a terminal illness, destructive accident or unpredictable situations can steal the dream of retiring in the lap of luxury.


Risk management and willingness to learn


The fine line between luck and failure is your personality, knowledge and decision making ability doing so on facts, not on emotions.  Become your own expert, never stop learning. Foolish investors rely on people they don’t control.


For instance ask ten different people the same question and get guaranteed ten different answers—what would you do? Well, maintain a team of professionals for making informed decisions.  The basic idea of teamwork is leveraging time, money, knowledge and skills to boost  results.


Manage professional circumstances, update your knowledge and be wary about commercial interests of people around you, because leverage is only useful in the right direction and it can work against you.  Good luck.




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Klauster Blogs lead to a real person who worked as computer network architect for many years in different countries until retiring from IT and mastering a life as property investor and landlord.


The passion of sharing experiences comes from turning hobbies into income streams and business.  Helping people to avoid pitfalls and to be free to choose has been satisfying and most rewarding.


The philosophy to treat life, partnerships and hobbies as an investment has helped people in our circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.


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