First-time property investor – how do you prepare for owner’s liability and manage related risks for becoming an expert property investor, knowledgeable business leader, understand politics and the property market?
Ownership and Liability
First-Time Property Investor’s Margin for Errors
Property Ownership is a liability
When being a property owner (investor, landlord) you cannot easily walk away or ignore that the property is a liability and safety lays with the person who is (or has been) in control. That is not always the first thought in people’s mind when buying investment properties.
Rookie investors sometimes think having succeeded after buying the first investment. Well, I would not go along with that. It is not uncommon that experienced investors failed and lost everything. What went so awful wrong and what can you do to avoid it happening to you?
Plan ahead and cover your 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 owning the title and you need to be prepared for everything that can go wrong. Cash-flow can turn negative, unexpected bills need to be paid, disastrous situations do challenge any insurance cover, and legal claims can turn into nightmares. Few examples:
· From a tax audit you received a huge bill for unpaid tax, penalties and late payment fees. You are responsible for errors made as stated in the disclaimer from your accountant. Kept clueless by the trusted accounting service, why would it be your fault?
· The bank called in a loan due to misunderstandings, missed loan re-payments or drop in property value (equity) held by the bank as security. The market dropped steeply, your income and equity, too—is that your fault?
· A tenant abandoned unexpectedly with rent arrears and damage to the property. You have been successful at the tenancy court, but unable to enforce the court order, what can you do?
· A renovation disaster runs out of your control, the builder walked off the job and no remaining funds make it difficult to hire somebody else, how would you complete the renovation?
· How have you been managing the risk in case of relationship breakups? Do you know stories about splitting assets and the implication of the Relationship Act?
Hopefully these examples give you some understanding how important planning ahead can be just to manage related risks. By looking at recent changes to taxation rules for income producing assets you will understand that investing in properties has never been as tricky as it is nowadays. The margin for errors is very, very slim.
Take another example—negative geared investments; People with good paid careers who can afford off-setting loss do invest in capital gain properties. That can be risky when unexpectedly market or personal circumstances change, but also because of an u-turn in politics. Think about “ring fencing” or amendments to treat capital gain differently.
Patience and willingness to learn
Starting small, having a good career and savings that allow you to make mistakes without the risk of bankruptcy. Even the most experienced property investors who have been in the market for years make mistakes. The fine line between luck and failure is your personality, understanding and decision making based on facts, and not on emotions.
Become your own expert. When relying on other people, ask ten different people the same question and get guaranteed ten different answers—what would you do? Each of your peers has various experiences, professional circumstances, knowledge and maybe commercial interests—be wary about that!
To take from here
If you don’t embrace the additional workload for being a property investor, then your goal doesn’t mean that much to you. Acknowledge, property investments require more hard work, dedication and professionalism than other types of investments. And it takes years until finally your effort pays off. Look at three areas of expertise;
· Be an expert property investor
· Be a knowledgeable business leader
· Understand politics and the property market
Well, the volume of information might be overwhelming, but time is working in your favour. You will find answers, but once at the time. I am happy to challenge your mind if you are willing to learn.
Investor’s & Landlord’s Blog
Investor’s & Landlord’s Luck and Failure
Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.
His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of life—how to avoid pitfalls in unfamiliar territory when investing or forming relationships.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
Come along and share your views—learning for success and confidence