Five ways to reduce risk when investing in property
Risk in property investment is always relative to the current economic climate. Before the 2008 financial crisis, property investment wasn’t considered to be particularly risky. However, even with property prices currently on the rise, there are many individuals who would question investing in property in the current market. Your property investment strategy will make a big difference to the amount of risk involved. Even though there will always be an element of risk with any investment, you can mitigate this by adopting a low-risk strategy.
1. Take a long-term view
Throughout your property investment journey, the fluctuation in the property market as well as interest rates will influence your decision making. Despite these variables, it is relatively safe to say that house prices will continue to rise. The cost of property has risen substantially over the last twenty years, and the chances of this continuing are almost guaranteed. Our advice would be to buy smart, invest without overcommitting yourself financially, be prepared for some potentially tricky times, and persevere, you will see good returns.
2.Don’t be hasty
Carrying out thorough research on the area you are investing in is vital to ensure you pay a fair price for the property. In the beginning, it is easy to get excited and make rash decisions which could lead to you overpaying, thus making your investment less profitable. It’s important to remember that for every pound you spend, you will need to recuperate this at the point of selling the property. Researching the area you intend to invest in will stand you in good stead when it comes to agreeing on the initial purchase. This is particularly true for buy-to-let investments as this research will give you an understanding of the current rental demand and how long it typically takes to let a property.
3. Get the right insurance
Making sure you have the right buy-to-let insurance cover will save you a lot of sleepless nights if your tenants stop paying rent or damage your property. Some letting agents will offer to find you the right level of cover as an additional service (for a small fee). Typically, your protection will start when your tenant stops paying rent and will continue until the issue is resolved. However, all insurance policies are different, so it pays to read the fine print to make sure you know exactly what is and isn’t covered.
4. Check your tenants
Make sure you complete background checks your tenants before agreeing to let. Requesting references and having them verified is a crucial step in any buy-to-let investment strategy. It is much more difficult to remove bad tenants, so taking time to go through proper processes and procedures will save you any hassle in the long run. You may also wish to show any potential tenants around the property before entering an agreement as this will give you a chance to get to know the type of people they are. By following these simple steps, you will lower your chances of letting to bad tenants considerably.
5. Make allowances for rate increases
Paying close attention to interest rates is important for budgeting before you buy, which should help you avoid over-committing yourself financially. If you borrow the maximum amount available to you and interest rates go up, you could find yourself with mortgage payments higher than the rent for the are. If long term fixed rate mortgages aren’t available to you, we would always recommend giving yourself some wiggle room to account for potential interest rate changes.
In summary, there are sometimes things that happen in the property market that are entirely out of your control and they can be stressful. However, some factors are under your control, so avoid costly mistakes by following the advice above. Planning ways to minimise risk for yourself may seem tedious in the beginning, but the long-term benefits far outweigh the extra time it takes. Don’t leave things to chance, do the necessary preparation work, and make sure you set yourself up for the best possible outcome.
If you would like to know more about how Nichol Smith Investments could help you on your property journey, please book a call with us through the link on our homepage.
