Unfortunately, many property investments will not survive the ‘pressure test’ of COVID-19.
Poor investment strategies will be exposed, and investors will have their financial capacity stretched to breaking point, or beyond, as is the case in every crisis. Investors who have jumped blindly into the market, without a clear understanding around how to minimise risk, will simply not be prepared for the bumpy road ahead.
I’ve learned that a great investment formula protects you, even in times of crisis. And while all investing has some risk, the level of risk is controlled by you. This risk profile must be clearly understood and carefully adjusted before you purchase, as it’s almost impossible to change later. The good news is that most risks can be avoided or minimised.
The real test is coming!
The real test will be when the various government stimulus packages, such as JobKeeper, come to an end late in September 2020. Tens of thousands of mortgages that have been enjoying a mortgage holiday will also resume their financial commitments around this same time.
During this period, I expect we will see rising unemployment continue to expose oversupplied locations and certain property types. Investors affected by the financial impact of servicing mortgages while properties sit vacantly could be forced to sell at a time when the pool of buyers is both reduced and spoilt for choice.
Popular Strategy Exposes Investors to Rising Risk.
I have grown to expect that certain market sectors, such as postcodes oversupplied with high-rise apartments, become very exposed during a crisis period. Over recent years a new trend has emerged that is now exposing thousands of investors to a high level of risk due to COVID-19.
Properties in bluechip locations were once only accessible to affluent homeowners and wealthy investors looking to secure a holiday home. In recent years they have become popular investment locations thanks to the increased popularity of short term accommodation models, such as AirBnB.
These properties often carry large mortgages that were once supported by high rental returns. Today most of these properties either sit vacant or the rental income has been drastically reduced to attract a long term tenant, often leaving the investor with a large weekly drain on their pocket.
With our borders closed to international tourists, it’s hard to imagine the same level of demand for these properties returning in the near future, leaving tens of thousands of landlords very exposed.
There will always be Bumps in the Road.
It’s important to understand that every crisis exposes poorly planned investment strategies. It’s also important to know that most property investors will just see this period as a ‘bump in the road’ in their investment journey, causing very little lost sleep.
Whilst we are already seeing investor confidence rise significantly, I encourage you to resist the urge to jump into the market. Instead, use this window of time to fully prepare for the opportunities that are bound to lay ahead. Please Invest first in your knowledge, before you race in and invest in a property.
You will learn that you can build wealth through property without exposing yourself to high levels of risk. You can establish investment rules that will ensure you are well prepared if another crisis occurs, and are sheltered from the storm well before it even appears.
A small investment of your time upfront will pay off many times over. You will discover there are proven recipes you can follow that will protect you from most, if not all, of the negative experiences many investors will face in this COVID-19 recovery period.