Depending on when you ask the question of how risky investing in property is, you might get some varying replies. In the lead up to the 2008 financial crash, you wouldn’t have met too many who would have deemed it overly risky to invest in bricks and mortar. However, with house prices at an all time high, there are many more doubters of the wisdom of property investment than there used to be.
This argument does also depend on how you approach the market and the good news is that there are a number of low risk methods that can be employed to protect yourself in the current housing market and whilst there is no such thing as a ‘no risk’ strategy, there are certainly some that put more in the hands of chance than others.
1. Play the long game
Whatever the properties are that are bought and sold over the course of your property investment career, you will be, for the large part, at the mercy of both the market and things like interest rates. There are many variables at work which often fluctuate, but the overall trend has been, is and pretty much, will always be an upward one.
House prices 20 years ago were significantly lower than they are now and in 20 years time, the chances of values being lower than they are now, are slim to none. As long as you buy well, don’t overstretch yourself financially and are prepared to ride out the rougher times, eventually you will reap rewards.
2. Don’t rush and overpay
When you set out on the road to making money through property investment, it can be very easy to rush into things and pay over the odds. Every pound that you spend on the purchase is a pound that you’ll have to recoup at the other end, so it’s vital that before bidding on properties, you comprehensively research the locale and more importantly, what constitutes a fair price.
This knowledge puts you in an extremely strong position when it comes to negotiation and it could literally save you thousands. Research will also pay dividends for buy to let investors, as a bit of research will give you lots of insight into rental demand and factors like how long it averagely takes to get tenants in the area.
3. Insure against bad tenants
Speak to an average buy to let investor and they’ll tell you that the one thing that keeps them awake at night is figuring out what to do in the event of their tenant stops paying rent and/or trashes the property.
All of this panic can be easily addressed by organising buy to let insurance from one of the major insurance providers. Letting agents often also offer this kind of facility as part of their service, which they will charge you seperatly for.
A typical policy will kick in when a tenant stops paying until you are able to rectify the issue. Cover does vary, so you must check the small print to see what each policy actually covers you for.
4. Vet your tenants thoroughly
There’s one thing that’s harder than finding tenants to put into your rental property and that’s getting problem tenants out. Ensuring that your tenants are asked to provide valid references, which themselves are verified, is a vital aspect of your buy to let investment strategy.
If you can, it’s also an idea to be the one showing potential tenants around, as meeting the people who will be living in your house will tell you a lot about them. When combined with a throughout vetting process, the chances of you getting problem tenants will drop significantly.
5. Factor rate rises into your budgeting
The Bank of England base rate of interest in the UK currently has much more scope for rising than for falling, sitting as they do at just 0.5%. This is in stark contrast to the worst times in the 1980s when they were pushing 15% and those who lived through that time will know that even a small change in the rate can have quite a big knock on effect on how much you have to repay for your mortgage.
The best way to avoid getting into financial difficulty, is to factor this into your budgeting before you buy. If you max out your borrowing and the rate then goes up, you’ll find yourself paying more than you’re getting in rent or with a mortgage you can’t afford to pay. Both are undesirable scenarios, so make sure you leave a bit of slack to take account of rate changes or opt for a long term fixed rate mortgage.
In summary
If a property purchase goes wrong due to factors out of your control, it’s distressing, but when it happens because of a lack of preparation and, you’ll end up kicking yourself. Thinking about what you could do minimise this risk before you start may seem like you’re being unnecessarily cautious to some, but to those who find themselves on the wrong end of the equation, it will seem like an entirely sensible and prudent thing to do.
Prep properly and you’ll take much of the chance out of the process, so make sure you do yours or you might end up regretting it.
