How to Minimize Risk When Buying Investment Properties

Joel Hynes
Feb 21
5 min read

IProperty investment is one of the most promising ways to build long-term wealth. While it's not entirely risk-free, the potential rewards outweigh the risks. Buy in the right area, and you could see your property's value soar. Do your research, and you could attract tenants who treat your investment with the utmost respect.

But don't stress! With a strategic approach and wise decision-making, you can significantly reduce risk and maximise rewards when buying an investment property. Here's how.

1. Buy in the Right Location (Because You Can't Move a House Later) 🏡

Have you ever heard the saying, "You can change a house, but can't change its location"? Well, that's 100% true. Location is everything when it comes to property investing.

How to Choose a Low-Risk Location:

✅ Look for High Demand – Areas with strong rental demand mean fewer vacancies.

✅ Check Infrastructure & Growth Plans – Future train stations, schools, and shopping centres = price appreciation.

✅ Avoid One-Industry Towns – If the whole suburb relies on one major employer, you're in trouble if they shut down.

✅ Research Market Trends – Suburbs with steady price growth over 10+ years are safer bets than unpredictable "boom" areas.

🚀 Pro Tip: Look at rental vacancy rates. A vacancy rate under 3% means tenants compete for properties, reducing landlords' risk.

2. Don't Overstretch Your Budget (Because Banks Are Not Your Best Friend) 💰

Just because a bank approves you for a massive loan doesn't mean you should take it all. If you overstretch your budget, even small changes like rising interest rates or unexpected repairs could put you under financial stress.

How to Avoid Financial Overcommitment:

✅ Stick to a Comfortable Budget – Leave room for unexpected costs like maintenance, vacancy periods, or interest rate hikes.

✅ Calculate Cash Flow Before Buying – Work out mortgage repayments, rental income, property management fees, and rates to ensure your property is positively or negatively geared. A positively geared property means your rental income exceeds your expenses, while a negatively geared property means your costs exceed your rental income, and you'll need to cover the shortfall.

✅ Have a Financial Buffer—: As a safety net, eep 3-6 months' worth of mortgage repayments in savings

🚀 Pro Tip: Use a mortgage calculator and factor in higher interest rates to see if you can comfortably afford the loan.

3. Choose the Right Property Type (Not All Homes Make Good Investments) 🏢

The type of property you choose dramatically affects risk. Some properties increase in value faster than others, while some struggle to attract tenants.

Safe Property Choices:

✅ Houses in Growth Areas – Houses typically value more quickly than apartments.

✅ Newer Properties with Low Maintenance – Fewer repairs = fewer unexpected costs.

✅ Properties with Broad Market Appeal – 3-4 bedroom houses in family-friendly suburbs tend to attract stable, long-term tenants.

High-Risk Property Types to Avoid:

❌ Student Accommodation – High turnover, high vacancy risk.

❌ Luxury Apartments in Oversupplied Areas – High strata fees, slow price growth.

❌ Very Cheap Properties in Poor Locations – If it's cheap for a reason, you might struggle to find tenants or future buyers.

🚀 Pro Tip: Check local rental demand—if vacancy rates are high, reconsider buying in that area.

4. Diversify Your Portfolio (So You Don't Put All Your Eggs in One Basket) 📊

If you already own an investment property, consider diversifying. If all your properties are in one suburb, you're at higher risk if the local market crashes.

How to Spread Risk Across Investments:

✅ Own Properties in Different Suburbs or Cities – If one market slows down, another may grow.

✅ Mix Different Property Types – A mix of houses, apartments, and townhouses reduces risk exposure. For instance, a house in a growth area can provide quick value appreciation, while an apartment in a high-demand rental area can ensure a steady rental income.

✅ Consider Commercial Investments – While riskier, commercial properties offer higher yields if chosen wisely.

🚀 Pro Tip: If you already own property in Sydney, consider investing in regional areas like Wollongong, Newcastle, or Brisbane to balance risk.

5. Screen Your Tenants (Because Bad Tenants = Big Headaches) 👀

One of the most significant risks in property investing is problematic tenants. If they don't pay rent, damage your property, or refuse to leave, your dream investment can become a legal nightmare.

How to Find Great Tenants:

✅ Use a Professional Property Manager – They handle screening, lease agreements, and rent collection.

✅ Run Tenant Background Checks – Always check rental history, employment, and references.

✅ Avoid Rushing into a Lease—Waiting for the right tenant is better than signing up a bad one quickly.

🚀 Pro Tip: If a tenant offers to pay more upfront or wants to sign without inspections, something might be wrong—be cautious!

6. Get Landlord Insurance (Because Things Can & Will Go Wrong) 🔥

Even the best properties and tenants can have unexpected issues. Landlord insurance provides a sense of security and reassurance.

What Landlord Insurance Covers:

✅ Loss of Rental Income – If your tenant stops paying rent or breaks the lease early.

✅ Property Damage – Covers repairs beyond the bond amount.

✅ Legal Fees – If you need to evict a tenant or go to court.

🚀 Pro Tip: Not all landlord insurance is equal! Read the fine print to ensure you're covered for accidental damage, tenant-related loss, and legal expenses.

7. Stay on Top of Market Trends (Because Knowledge is Power) 📈

Markets change constantly, and savvy investors stay informed. By actively tracking property trends, rental demand, and economic conditions, you can make informed decisions and feel engaged and proactive in your investment strategy.

How to Keep Up With the Market:

✅ Follow Real Estate News – Websites like CoreLogic & RealEstate.com.au provide market insights.

✅ Speak to Local Agents – They know the market inside out and can help you spot opportunities.

✅ Review Your Portfolio Annually – Is your property still performing well? If not, consider selling or refinancing.

🚀 Pro Tip: Join real estate investment groups to Network with other investors and gain insights.

Quick Recap: How to Minimize Risk When Buying Investment Properties

Risk Factor	How to Reduce It
Bad Location	Invest in high-growth, low-vacancy suburbs.
Overstretching Budget	Keep a financial buffer & buy within your means.
Buying the Wrong Property	Choose low-maintenance, high-demand homes.
Tenant Issues	Screen tenants & get landlord insurance
Market Fluctuations	Diversify investments & stay informed.

Final Thoughts: Play It Smart & Reduce Risk in Property Investing

Property investment can be rewarding if approached with caution and wisdom. By making informed decisions and taking necessary precautions, you'll build wealth while minimising stress and feeling confident and in control of your investment experience.