Tip 2 – Make Sure You’re Ready and Aware of the Risks
It goes without saying that before you begin any new venture, especially one as big as buying an investment property, you should know precisely what you’re getting into in terms of risk.
Property, like any venture, comes with a level of risk. But this doesn’t mean you should shy away from investing in property.
As businesswoman Mellody Hobson once said:
“The biggest risk of all is not taking one.”
That’s why the second instalment of our property investment tips focuses on preparing you for the risks involved.
So what are the basics and the risks of property investment that you need to know about?
Put simply, the main risks behind property investment fall under the property market itself and the tenants that live in your property.
The Risks Involved With Investing in Property
Property Price Fluctuations
When you invest in property, you’ll buy your property at a certain price with the intention of being able to sell it for a larger amount. This allows you to make capital growth returns on your investment.
If property prices fluctuate negatively and your property drops in value, it may be difficult to sell it for more than you purchased it for.
The likelihood of this happening in the UK is low, particularly if you know which areas to invest in. Even so, every sensible soon-to-be property investor needs to think about this risk as a possibility.
Rental Market Changes
While property price fluctuations can affect capital growth returns, rental market changes can affect rental returns.
In the same way that property prices can drop, average rental costs can also decrease if an area is suddenly less desirable to live in, and therefore sees lower rates of rental demand.
With the rental market in the UK more in-demand than ever before, this is an unlikely risk, particularly in popular rental cities and towns.
However, it’s important to be mindful that the rental market can change and affect your investment, and that’s why carrying out market research is such an unmissable property investment tip.
One of the pitfalls of investing in property, specifically with buy to let investment, lies with the tenants you choose to rent your property out to.
While rare, there’s always a small chance that you could come across unreliable tenants who may end up paying their rent late, leaving you with void periods where you’re losing money.
This is one of the risks that many investors don’t think about, so preparing for this is one of the key property investment tips to know about before you even begin your venture.
How to Minimise Risk When Investing in Property
Have these risks got you worried about your property investment venture?
You can do things to minimise risks when buying an investment property. These are:
Research the Property Market
The best way to minimise any risk of your investment being affected by negative property market fluctuations is to research the market in detail.
Because purchasing a property in a UK property hotspot will reduce the chances of a risky investment by ensuring the likelihood of high capital growth and rental market growth is strong.
Look at past market performance, pay attention to whether the area has a large population of young professionals and students (suggesting a stable rental market), and research future market predictions.
You should also think about whether any regeneration occurs in the area surrounding the property, as this could further boost growth.
Conduct Thorough Tenant Screening
Reduce your chances of getting bad tenants by conducting thorough tenant screening, whether you do this yourself or use a rental property management company.
Tenant screening reveals things like employment history and runs credit checks so that landlords can be made aware of any financial issues.
You could also state that you’ll charge a late fee on delayed rent payments in your landlord agreement, making them aware of the exact date that rent is due.
But Are You Ready to Invest?
Being ready to invest in property doesn’t only mean knowing about the different risks involved.
You should ask yourself the following questions to better understand whether you’re ready to make a property investment venture.
Does Property Investing Make Financial Sense for You Right Now?
If the answer is no, you should reconsider buying an investment property and instead carry on saving your money so that you can comfortably invest later.
Are You Prepared to Do the Research?
If you’ve found yourself reading our top property investment tips guide, then it looks like you are prepared to do some research before you invest.
While this guide is a great start, you should expect to do more research. Research the property market in-depth and stay on top of market trends to get the most out of your property investment venture.
Reading property news coverage on reliable websites like The Guardian is a good way to stay updated on the property market.
Do You Know About the Rules and Responsibilities Involved With Being a Property Investor?
Being a property investor comes with certain rules and responsibilities. We wouldn’t be doing our job with this property investment guide without letting you know what some of those rules entail.
So, what do you need to know about?
- Complying with the UK’s ‘right to rent’ rule, giving all adults seeking a rental property in the UK the legal right to do so.
- Complying with safety standards such as fire safety and gas and electrical safety.
- Making the property energy efficient, with an energy performance certificate rating (EPC) of at least E.
- Complying with landlord licensing laws.
- Complying with all tenants rights, including tenancy deposit retrieval, pets, and the right to privacy.
Keep in mind that these rules mainly apply to landlords, so if you’re not looking to manage the property yourself, then these may not be relevant to you personally.
Do You Accept a Level of Risk?
If you’re not ready to accept the risks mentioned in this section of our property investment guide, you may not be in the right mindset to buy an investment property.