30 September 2026 * 12 min read

Many Australians have successfully built wealth by investing in property – and some have significant portfolios. However, making money from such a tangible asset as bricks and mortar is not always a sure thing.

In common with all investments, the value of your asset can go down as well as up. That's a given, but there are many other factors, costs, expenses and risk scenarios to consider too, when putting together an investment strategy involving property. Understanding market conditions, potential costs and different risk scenarios is just the start.

So, if you’re thinking of buying an investment property – or you already have one – it’s worth being on top of the potential pitfalls. In this article, we look at some of the most common risks that go with investing in property – and provide some considerations on ways to help manage them.

Key take outs

• When buying a property either as a short- or long-term investment, it’s important to consider the risks you may face.
• Informed planning, sound strategy and good market research may potentially help reduce the level of risk you face.
• Use our checklists to help assess and address your property investment risks – aiming for peace of mind and a successful investment.

Common risks of investing in property and how to help manage them

1. Market risk

It’s no secret that over the past thirty years, Australian property has gone up in value. But in the shorter term, there have been many downswings and market corrections to real estate prices. Market decline risks include reductions in property value as well as high vacancy rates.

Market volatility, even on a small scale, can impact house prices from state to state, and between neighbouring suburbs. Buying at the top of the market – when prices are high – could potentially cost you a lot of money.

Beyond market and interest rate risks, property investment also involves opportunity costs, as your funds may be locked into an asset that underperforms other investment options over time.

Help manage the risk:

• Real estate prices often move in cycles. You might consider following the market for trends before buying an investment property.
• When property investing, closely assess the market price of a property to avoid the chance of getting into negative equity – where your house is no longer worth the purchase price you paid.
• Think of taking a long-term approach to investing. Property values may change over time, and a longer investment horizon can help investors navigate short-term market fluctuations.
• If you own more than one investment property, you may consider diversifying your property portfolio as a risk management strategy. Some investors choose to spread exposure across different locations or property types, although diversification does not eliminate investment risk.

2. Property risk

Property can be seriously damaged or destroyed by unexpected natural weather events such as storms, fire and floods. It can also be wrecked on purpose or accidentally by tenants, or by building contractors working onsite. Any kind of repairs can be expensive and can also lead to your property being empty for some time.

Help manage the risk:

• Choose the location of your property wisely. For example, it’s a good idea to check if you’re buying in a flood zone or an area of high fire danger. Have a plan in place for your property to protect it in the event of severe weather.
• Check you have the right amount of building insurance in place as soon as you sign the contract for the property. Check with your lender and an insurance broker about the amount and most appropriate type of insurance cover you need, noting that coverage and claim outcomes always depend on the applicable policy.
• Consider if landlord insurance is right for you and your circumstances.

3. Vacancy risk

In common with the property market, the rental market can go through periods of high and low demand. This means there may be times when it can be harder to find quality tenants and your investment property may sit vacant for several weeks or months. Every day your property is empty it can impact your rental income, cash flow and ability to pay your loan repayments.

Help manage the risk:

• Think about choosing a property in an area with good infrastructure and employment opportunities, such as one that’s close to a hospital, schools and growing commercial areas[KB7.1].
• Maybe offer good tenants longer contracts or a reduced rate as an incentive. [KB8.1]
• Consider keeping money aside to make good any shortfall from a vacant property until you find your next tenant.

4. Bad tenant risk

Having no tenants can be stressful, but having tenants who cause property damage, pay rent late, or stop paying rent altogether, can cost you a lot of money and anxiety too. If tenant disputes arise, the management costs may increase significantly beyond standard fees.

Help manage the risk:

• A real estate agent or property manager may assist in thoroughly screening potential tenants and collecting personal and financial references.
• Consider inspections every six months and have condition reports done on the property by suitably qualified professionals. You can attend inspections[KB9.1] by request.
• You may choose to take out landlord insurance that covers you for tenants who default on rental payments.

5. Structural and environmental risks

Buildings can be impacted by local developments such as new roads and expanding or new airports. Pests such as termites and environmental risks including floods, erosion and even earthquakes can also wreak havoc and affect property values.

Help manage the risk:

Before you buy, think about conducting a search for any planned local development that may negatively impact your property.

• Consider a building inspection before you buy to help identify potential maintenance issues – and follow up with a pest inspection every year.
• Do your due diligence if you plan to buy in a coastal or riverine area to see if your potential investment could be impacted by adverse weather events.

6. Overcapitalisation risk

If you spend too much money on your investment property – improving it to the extent that the amount spent outstrips what your property’s worth – you run the risk of never getting that money back and reducing your profits. Especially, if you need to sell it sooner than you had planned.

Help manage the risk:

• Consider investing in a property that doesn’t need a lot of renovation and is ready to go, in terms of renting it out.
• Think of a staged approach to improving the property. Upgrade gradually over time and ask your financial adviser or accountant about potential tax deductions.
• You may wish to avoid spending top dollar on luxury renovations. Rental properties can take a lot of wear and tear – so aim for finishes and appliances that will last and won’t be expensive to replace.

7. Higher interest rates risk

As Australians have experienced in recent years and decades, interest rates can rise as well as fall. If you buy a property when interest rates are low and you’re not prepared for steeper mortgage repayments due to potential rate hikes, you could get into mortgage stress with your investment starting to cost you money rather than make you money.

Help manage the risk:

• Consider taking out a fixed rate mortgage or splitting between a variable and fixed rate, so you have a buffer if interest rates start to climb.
• Negotiate the best interest rate and other product features you can from your lender, or refinance if you’re able to – subject to eligibility, lending criteria and approval.

8. Lack of liquidity risk

Compared with other investment classes such as shares, property isn’t as easy to convert back into cash. If you need to sell an investment property quickly to realise your equity in it, it can take months to sell. Even if it goes fast, average settlement times are around six weeks and will depend on jurisdiction, the contract, purchaser finance and other transaction circumstances.

Help manage the risk:

• Consider if property is the best type of investment for you and talk to your accountant or financial adviser about whether your financial plans are appropriate for your situation.
• Weigh up if a diversified investment portfolio with assets that have more liquidity might give you more peace of mind.
• Think about building a reserve of cash if you can, to tide you over if needed, until you sell.

9. Costs risk

Buying an investment property can take a sizeable deposit and you'll have to allow for ongoing property related expenses such as gardening, pool maintenance and building repairs. Plus, there's stamp duty and legal fees to buy the property – and rates, insurance, potential strata fees and land tax to be paid, and more.

Help manage the risk by:

• Preparing a detailed budget for ongoing costs before you buy an investment property – and keeping it updated.
• Speaking to your accountant or financial adviser about how best to structure your property to suit your financial situation. Sound professional advice could reduce the likelihood of making costly mistakes.

10. Area risk

Property values can be influenced by a range of factors, such as whether you buy in an established location, or a more affordable area that still has growth potential. Emerging areas may benefit from future development and investment, while established areas may offer different market dynamics. However, local economic conditions and the pace of development can impact property value growth in any location.

Help manage the risk:

• Do the research to see if there are indicators that a suburb or town may be about to enjoy positive growth, including new urban development, good access to public transport and a growing population.
• Check the crime rates for the area.
• Research the capital growth for properties in the area over time and see if the market has been slow to appreciate.
• Avoid emotional investing when you buy into an area just because you used to love it or live in it.

In summary

In common with all investments, putting your money into property has potential upsides as well as potential downsides. Sound research and due diligence could help guard against nasty surprises.
If you’ve explored potential property investment risks and factored in possible scenarios – and you're still keen to buy an investment property – reach out and talk to us. We love to help!