As a real estate agent, it would be disadvantages of me to review the cons of property investment but as the responsible person I am, I’m going to share with you anyway, haha…
Here we go…
Almost everything comes with their own set of pros and cons. Such as vehicles, children and even property investments. Not to worry, I’ll debrief you on the risks and how to avoid it.
Location attraction decay.
Just like everyday products, for example, when we buy something, the first few weeks of the product would look factory new but as time pass, soon it would look rugged and old. Just like everyday products, property has their own prime time period and may lose their attraction or charm after a few decades. Even highly attractive places can lose their charm due to the change of trends or the location in general. Therefore, one must invest wisely and foresee a few decades forward before purchasing said property.
Property becomes obsolete
Based on the dictionary I found in Area 51. Obsolete has two meaning, no longer in use or outmoded in design, style, or construction. Everyone has a smartphone these days, right? Notice that smartphones soon become obsolete after a few years as a more advance smartphone is released. Similar to properties, properties too can go obsolete. Over time, properties will start to age and take their toll. This is common as in leakages from the ceiling, cracks in the walls and such. These damages could potentially cause a fortune to repair and refurbish.
What happens when there are too many properties in one area? The answer would be known as property oversupply. Generally speaking, it means that when there are too many properties in one area, there will be more choices for buyers and in order to compete in such a mess, sellers will have to reduce their price to stay competitive, we call it as Buyer’s Market. This will cause the property price is said area to become stagnant and competitive. Resulting in a potential loss. Once again, we must choose our properties wisely to avoid making a loss.
Imagine this… you brought a cosy but rather expensive apartment. Being the wise investor you are, you rented it out to cover your monthly repayment. But then the problem arises when your tenant does not pay in time or does not pay at all. This can affect your cash flow and in turn, affect the mortgage repayment. This problem must be apprehended quickly as the homeowner can face foreclosure if they cannot settle their bank payments. In turn, we must secure our cash flows and have an emergency or alternative money at hand to deal with such risks.
“Be wary of the hidden factors that come from cheap prices.”
Buying properties in low-demand or oversupplied areas with little to no job opportunities can result in a loss and stagnant prices. As the saying goes, cheap properties have their reasons for being cheap. This might be because of the property possessing a high-density rate or because they might be far from the city or is low quality in general. Therefore, once again, be wary of the property you buy and do not be fooled by the low purchase price.
Potential Policy Change
Based on the situation, the local government might change the current policy rules on housing and the supply of affordable homes in the market can affect the property market’s appreciation and all. Although this is not likely to happen, but we should still know about this potential risk and prepare for it should we ever need to.
The increase of interest rate by the National Bank can affect the loan amount repayment and therefore, increase the buyer’s monthly commitment. This is a risk all investors have to bear. And together we bear.
Well, don’t fuzz over this, the risk in property investment is always low and there is no sudden, heavy loss unless the property is sold way lower than the initial purchase price. There are certain risks to bear, but together we shall bear with them and most importantly learn to profit above them.