4 Oct 20184 Golden Rules of Property Investment
If you have plans to buy an investment property, understanding the following rules of investment prudence could go a long way.
- Monitor your cash flow and expenses – Tabulate and record all cash flow and expenses incurred for your investment on an excel spreadsheet. Monitor those numbers and check for deviations or unplanned expenses. Always exercise financial prudence in managing your investment property.
- Have backup reserves –You should have at least 6 months’ worth of living and working expenses in cash, fixed deposits, government bonds or other liquid assets at hand. Add this to the 6-month reserve of monthly mortgage payments in case there is any prolonged vacancy period.
- Plan for contingency – You need to factor in unexpected events such as repairs, rising interest rates, or tenants defaulting on rent. It’s best to have additional savings on standby for such expenses.
- Do a stress test –Prepare for a “what if” situation. Financial institutions often do stress tests on their businesses to root out the weaknesses. In property investment, tests could come in the form of property remaining vacant for a period of time, fluctuations in rental rates, depreciation in value, or unexpected changes in your employment situation. These exercises help you to anticipate stress situations so you can discern if you have the financial means to weather them.
If you adopt and practice the above rules judiciously, the course of owning your investment property should be a manageable and profitable experience.