We don’t regulate direct property investment but we do regulate managed fund and property syndicate providers. There are a number of things to look out for if you are investing directly in property.
You usually have to borrow a large amount of money to invest
Most people pay a deposit and borrow money to invest in property. Ask yourself how much debt you can afford to take on. Use your bank’s mortgage repayment calculator to find out how much you need to repay per month, and how much of your income is left to pay other household bills.
Your mortgage repayment will rise when interest rates go up, affecting your disposable income. A 0.5% rise in interest rate to 6% for a loan of $300,000, fixed for 30 years, would add about $110 more to your mortgage each month, or a repayment of around $1,800 per year.
If interest rates fall, and you choose to refinance a mortgage rate that has been fixed for a number of years, you might need to pay a penalty fee for breaking the terms. This may make your total loan repayment more expensive. It’s also possible to end up owing more than your property’s worth if its value drops. This is known as negative equity.
Your money isn’t easy to access
Buying a property can tie up your savings. If you invest most or all of your cash in property and then need access to cash, you’ll either need to sell, tenant your property or increase your mortgage. This isn’t always easy and there are usually fees involved.
Your rental property may not always have a tenant
If you have a rental property and cannot find tenants, you’ll have to dip into your savings to pay your mortgage. Make sure you have enough savings to cover these unexpected costs.