Property investment risks in Australia: landlord insurance is not the only consideration

Investors often fail to fully realise all the risks when they make the decisions to invest in bricks and mortar.

Landlord insurance can lend peace of mind when it comes to many of the issues relating to tenancies in Australia, including the prospect of tenant default, cleaning up after clandestine drug laboratories, property damage accidentally or deliberately caused by the tenant, and more.

Failure to manage risk is one of the key reasons many property investors sell within a year, frequently at a loss after transaction costs are taken into account, there are things to be aware of at every point of the investment journey, from the initial decision to buy into real estate to property selection, financing and tenanting.

Contrary to perceptions, Australian property investors aren’t necessarily rich, figures from the Australian taxation office show three quarters of the nations 1.7 million investors are on incomes of $80,000 a year or less.

Before investing in a property, you should firstly determine whether the property is the right asset class for you more and then think carefully about which particular property is likely to outperform others.

Depending on your personality, overconfidence can be a risk – but so can its opposite number, “analysis paralysis” (if you never take the plunge you’ll never profit).

There are plenty of property spruikers happy to take advantage of the unwary – so you need to do your own research as well as getting advice from your accountant, financial planner or mentor.

Planning is important. Consider all possibilities to avoid a situation where you may be forced to sell. What if you have a child? What if interest rates rise? What if you can’t find a tenant for several months? What if your tenant absconds or, accidently or deliberately, damages your property? What if you need a new car?

1800 661 662 | F: 1300 794 773 | enquiries@rentcover.com.au | www.rentcover.com.auElkington Bishop Molineaux Insurance Brokers Pty Ltd | ABN 31 009 179 640 | AFSLN 246986 | Est 1975

Property investment risks in Australia: landlord insurance is not the only consideration

Buying for negative gearing or depreciation benefits is of questionable value if your main aim is to make money long-term. You need to recognise that property values do fluctuate and look to insurance to help protect your circumstances that may force you to sell in a hurry.

Traditionally, before superannuation was introduced in Australia, investing in bricks and mortar was one of the few paths to a comfortable retirement.

It still holds strong appeal today for these attracted but the hope of strong capital gains, the security of an asset they can touch (and, potentially improve by renovating) and prospects of an income stream in retirement.

To minimise the risks, property investors in Australia should make sure they have access to a cash buffer to shield them in case of unemployment; consider income protection insurance in case of injury; safeguard the premises with adequate building insurance; and cover off on the “human risks” of tenancy with good quality landlord insurance.

Our advice about insurance is provided for your general information and does not take into account your individual needs. You should read the Product Disclosure Statement and Policy Wording prior to making a decision, these can be obtained directly from EBM.

1800 661 662 | F: 1300 794 773 | enquiries@rentcover.com.au | www.rentcover.com.auElkington Bishop Molineaux Insurance Brokers Pty Ltd | ABN 31 009 179 640 | AFSLN 246986 | Est 1975