PROPERTY INVESTMENT! Is it right for you?

1. Understand your risk profile

Your risk profile is your appetite to take risks with your investable funds. You should always understand your risk profile before making investments of any sort. When considering property investment, it’s particularly important to come to terms with your own level of comfort in borrowing to invest. Taking on additional debt is not something you should do lightly, especially if you already have a mortgage on your primary place of residence. Tip: Talk to a professional financial adviser, who may help you understand whether property investment matches your risk profile and if it suits your broader investment and lifestyle goals.

2. Cash flow management

Many people invest in property to rent it out and enjoy a regular income stream. Of course, things may not always go as planned. For example, you may have issues with tenancy. Managing cash flow is one of the most important elements of owning an investment property. Plan out your incoming and outgoings using a budget calculator, to get a real sense of the financial commitment you’re contemplating.

3. Develop a life plan

Property Investment is a long-term investment, so it is wise to think about what you might be looking to do and achieve over the next five to 10 years. You might be planning to have children, travel, change jobs or retire. Property investment may suit your lifestyle now, but major life changes will affect whether it’s a good or bad investment decision over the appropriate time horizon. Tip: Make sure your financial adviser knows about your future goals. They could provide advice on whether property investment suits your medium and long-term plans.

4. Research the property market

If you currently own property it may feel logical to purchase an investment property nearby. After all, you know the neighbourhood, and you are close by if you want to manage it yourself. Other people might see better growth opportunities interstate or in another part of the city because of a new suburb that is forming. Investing in a different suburb, state, or in a different property type, may offer diversification benefits if you already own your primary place of residence or have existing investment properties.

5. Sense check whether the property is a suitable asset class for you

As well as exploring your risk profile and life plan with your financial adviser, it’s good to understand why the property is your preferred investment. Depending on your personal circumstances, there may be investment opportunities that are better suited to your needs and financial goals. Liquidity, for example, is a key risk to consider before investing in property. There are high transactional costs in buying and selling property and, depending on the property cycle, it can be difficult to find the right buyer at the right price when you choose to sell.