Do This Before Investing In Shared Accommodation

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Owning a shared property might seem like a good idea to make money. You can rent out multiple units to reduce your reliance on individual tenants. And you can share the load with other investors without having to stump up all the capital yourself. It seems like a win-win.

But that's not how it always works out in practice. Investors often find that they usually run into trouble because they haven't laid the proper groundwork before taking the plunge.

In this post, we take a look at some of the things that you absolutely must do before investing in shared accommodation.

Check Whether You Can Rent The Property

Sometimes investors get into trouble when they purchase a property believing that they can rent it out, only to find later that they can't. Check the rules in your area and, if in double, contact your local authority for confirmation. Don't rely solely on newspaper articles or the word of the seller. Caveat emptor – buyer beware.

Get Your Legal Team Together

Strata lawyers can help you with all sorts of things, including your owner's corporation's formation. You want to make sure that you get this right the first time around, instead of finding glaring problems in the future that cost you money. If you don't, you could find that you're not compliant or that costly legal disputes arise in the future.

Consider Overseas Options

While we tend to invest in the things we are most familiar with, consider that the options abroad may be considerably more cost effective for you and your property portfolio. For example, Simon Conn may give you inspiration as to the kinds of alternative overseas mortgage options and how you would be able to manage it remotely.

Beware Of The Costs Of Buying An Increased Shared

Holding a small share of a shared property can be a great way to earn a solid return. But when you start ratcheting up the proportion you own, you can find your returns begin to fall. In many cases, you're better off just investing a small amount of your capital in a separate shared enterprise.

Costs, for instance, could include stamp duty, added mortgage fees, legal expenses, and valuation fees – not what you want.

Sometimes, you'll be able to check with your buying provider when these additional costs kick in. Often, they don't start until you own around 10 percent of the property, but the rules can vary wildly from scheme to scheme, meaning that it is always prudent to check first.

Think About How You'll Manage Negative Equity

Let's say that you plough all your money into a single shared property because you think it's a good investment. Everything seems to be going okay to start. But then house prices take a turn for the worse, and you wind up seeing the value of the property decline.

In many cases, investors can get into negative equity – a situation where they owe more money on their asset than it is worth.

So what can you do to prevent this kind of thing from happening to you? Again, it pays to buy small chunks in a lot of shared properties instead of one outright. That way, you can spread the risk and limit your negative equity.

So are you ready to start investing and earning money from shared accommodation? Or do you still need time to plan?