One of the main things that put people off investing is risk, or perceived risk. We get it, it’s scary putting your money into something when you’re not completely sure you’ll see it again.
In this blog, we’re taking a look at risk
when it comes to investing in property and delving into what we’re doing at The
Property Crowd to ‘de-risk’ property investment.
What are the risks?
Investing in property usually involves a big investment. We’re talking hundreds of thousands of dollars.
Often, most of that money is provided by the bank. If a property investment goes wrong, investors can end up owing the bank thousands with nothing to show for it.
Ideally, property Investors need to be sure that the rent they receive from tenants and their own income will cover the mortgage owed to the bank as well as other expenses such as rates, accounting and insurance for the property.
The more they rely on topping up the rent, the riskier the investment.
If the value of a property has risen since you bought it, you make a capital gain. If there’s no difference, you make nothing. Worse still, if you sell the property for less than what you bought it for you make a loss. But you still owe the bank the amount you originally borrowed.
Negative gearing is when the expenses to run a property are greater than the rent it generates, and a loss is incurred.
Offsetting those losses against your other income offers investors an opportunity to pay less tax (although this is currently being reviewed by the government).
Signing up for an investment that guarantees a loss is something many young investors don’t properly understand. It just feels too risky right from the start
How does The Property Crowd ‘de-risk’ property investing?
We understand that the risks of traditional property investing can be too much to overcome so we’ve put plenty of ideas in place to make sure The Property Crowd platform is as low risk as it gets.
Positive cash flow
All our properties are positively geared so they all make money. Whatever is left over after paying expenses on the property, is split between the investors and paid as dividends.
Each property has a reserve fund that contributes to any required maintenance and covers any unexpected surprises. This means we even out any financial hit due to required maintenance.
Minimal or no debt
Investors group together to buy a property outright, so there’s minimal lending or debt. That means we don’t have to service a mortgage.
We’re also not at the mercy of interest rate increases should they occur. Investors are almost guaranteed a return even after expenses are covered.
The financial outlay required is significantly less when you invest with The Property Crowd.
With our crowdfunding platform, you group together with other investors to fund a property purchase. You can invest as little as $100 so you’re only putting in what you feel you can comfortably afford.
Finally, it’s potentially a lot easier to get out of your investment when you’re buying with The Property Crowd. If you need to get cash out, you can sell your PropertyShares* to other investors and walk away without the hassles and expense involved when selling a property.
Of course, we suggest you hold on to your investments for as long as possible to increase your returns.
If you’re ready to give property investing a go with less risk, register your interest in The Property Crowd.
*Shares in a holding company that owns an individual investment property