5 Ways To Reduce The Risk Of Property Investment
It’s no secret that traditional savings accounts are offering interest rates best described as “less than exciting” right now.
It’s little wonder that so many people are sniffing around the property investment market, looking for more impressive rates of interest.
At the same time, as tempting as investing in property may first appear, there can still be some significant risks involved. So how can the intelligent investor seek to reduce these risks when getting started?
Do Your Research
Image Source – By Ibran
First and foremost be certain to do your research before buying any property as an investment. Oh sure, you might miss out on the first few deals as you do the maths, but its better this way than jumping into a deal that doesn’t make any sense.
For ease, it is often best to focus your efforts on a particular type of property (such as buy-to-let investments) or on an area – or perhaps even both. This laser-like focus allows you to more rapidly build up solid experience, which in turn helps you to spot opportunities that others haven’t noticed.
Make Money When You Buy
Too many investors buy a property based on whispers of forthcoming growth. Someone “in the know” suggests that a new railway line, or a big company, is coming to the area. So they buy and hold. Then the promised regeneration never happens – and neither do their profits.
It’s generally much safer to invest in the kind of property where you make a profit as soon as you purchase. Examples might include structurally sound properties in need of cosmetic work, or where permission for an extension is virtually guaranteed, or buying off-plan for an instant discount.
The goal should always be to land a paper profit when you buy, rather than gambling on something in the future which may (or may not) happen.
Invest Smaller Sums of Money
The more capital you sink into an individual property, the greater your exposure. While we all know that the average UK property price keeps on spiralling, there are still great fluctuations across the country.
While many investors are giving up on over-heated London, many northern cities such as Manchester offer properties well below £100,000 – and sometimes less than half that. Interestingly, yields can also be higher in these less competitive areas.
Just because you’re not based local to the property doesn’t necessarily have to be a problem if you’re able to enlist the help of an experienced agent to manage it in your absence.
Spread Your Investments
Image Source – By John Morgan
Just as sinking all your funds into a property can increase your risk, so can investing in just one. As anyone that has a share portfolio will tell you, some will go down in value over time while others go up. This is why it generally makes sense to invest in a broad portfolio of shares – and is one reason why simple tracker funds often out-perform expensive fund managers.
The same goes for properties too. Assuming you’re doing your research properly, investing in a number of properties can be a very smart way to hedge your investments.
There are a number of ways to do this. Firstly, you could buy into a number of cheaper properties, or alternatively you could make use of a property fund that puts money into a multitude of different investments.
Go for Guaranteed Yields
Lastly, a minority of property investment companies such as RW Invest offer guaranteed yields for a specified period of time (typically 1-3 years in total). So while such a plan won’t protect you for the lifetime of your mortgage, it can certainly add a healthy degree of insurance as you’re just getting started investing.
Whatever you do, be sure to pay as much attention to minimising risk as you do to maximising returns. Only when you’re able to find this balancing act will you be able to sleep soundly at night, knowing you’re well insulated but earning healthier returns than you would with your old savings account.
Main Image Source – By Helen M Bushe