If you fail to plan, you’re planning to fail
The first step to successful investing is figuring out your goals and risk tolerance. Before you make any investment decisions – whether it be fractional property investment or not – sit down and take an honest look at your entire financial situation.
It’s important that your goals are aspirational, but also achievable. Whether you are new to the property market or a veteran, you will want to be working towards something profitable and meaningful. Create a roadmap for yourself by making a list of goals for both the short and long term.
One of the greatest benefits of fractional investment property is the reduced level of risk involved, compared to traditional property investment. The risk is lower because of the investment’s syndicate-style approach, meaning the risk is shared among your fellow property owners – up to 100 people on the CoVESTA platform. That said, there are other risks that you should be aware of and they start with you and the day-to-day decisions you make. Below are some things to consider prior to investing.
- Don’t bite off more than you can chew. It’s too easy to create unnecessary financial stress for yourself with credit card debt, a car loan, direct debits for the gym that you hardly use, subscriptions you’ve forgotten about, and the abuse of food delivery apps because you’re too lazy to get outdoors. Make sure you have a grip on your money and truly understand your financial situation before considering fractional property investment. Tidy up your own ‘backyard’ before you go hunting for property. You will have the peace of mind of knowing what you can afford.
- Emotion over reason. Buying your first home is an emotional exercise and one you should be excited about, but it’s important to keep a handle on your feelings. Avoid letting your excitement dictate your decision to buy. Do your due diligence before committing to any purchase. You may end up buying the wrong house or paying for a Block that is beyond your budget. Be sure you take the time to review the information on market value for similar homes in the neighbourhood to ensure you don’t overpay. Invest with your head, not with your heart.
- Hope for the best, prepare for the worst. Of course, the intention of every investment is to make a profit and see growth, but sometimes the markets are volatile and unpredictable. Smart investors put enough money into a separate savings account to cover themselves for an emergency situation, like sudden unemployment. Some make sure they have up to three to six months of their income in savings so that they know it will absolutely be there for them when they need it. It’s a good idea to set aside some accessible funds as a form of security so you don’t end up in a financial mess.
- Be aware of the risks of fractional property investment. As with any investment, fractional investment has its own specific risks to consider. These include; limited liquidity given you can only realise your investment either when the underlying property is sold for all, or you find a willing buyer for your share in the property. There is also the chance that you might not find sufficient numbers of other investors in time to raise the money required to purchase the property.
Fractional property investment is a great way to kick start your investment portfolio as it is lower risk than traditional property investment and may harness steady growth, but you also need to assess whether this type of investment is right for you. We are issuing this ‘alert’ to give you the tools to make an informed decision. Although fractional investment property is a simple and easy way to invest, you should always do your homework before making any type of financial commitment, no matter how big or small.
Screen yourself using the contents of this article, the website of the CoVESTA platform generally, seeking advice and doing your own research before diving head first into the purchase of your first fractional investment property.