Property investment is a risky business.
Things can go wrong and often do.
If you want to be truly successful with
property investment then you must do everything that you can to minimise your
No pain no gain right?
The returns in property investment are
worth taking the risk over aren’t they? If I didn’t believe that then I would
not have been in the property investment industry all of these years.
But right from the very first day I looked
for ways to minimise my risks and I am pleased to say that this has worked
really well for me. No matter how much experience you have in this game you
need to do this.
So in this post I am going to provide you
with the seven ways I minimise my risk with property investment.
are the main Risks with Property Investment?
If you are new to the property investment
game then you need to be aware what the main risks are. Even if you have been
involved with property investment for a while it doesn’t hurt to be reminded of
these risks. So these are the main risks with property investment as I see it:
- You purchase a property in a
- You purchase a property in such
poor condition that it is not viable to fix it
- The conditions of the property
- Finding and dealing with
- You purchase the wrong property
This is not an exhaustive list by any means
but I believe that these are the most common reasons why property investments
go bad. I have learned this from my own experience and through networking with
other property investors.
You can never be 100% sure about a property
project so what I am talking about here is taking calculated risks. Comparing
the reward with the risks involved is something that you must do. It is not
worth taking a lot of risks if the potential rewards are minimal.
Do your Homework
I have said in several posts on this blog
and elsewhere that you can never do too much research if you are involved with
property investment. Unfortunately it is an area where many newcomers to the
property investment world fall down and end up not getting the results that
they were looking for.
OK I get it. It is exciting to acquire your
first investment property and research is boring. I have seen experienced
property investors purchase properties that they just fell in love with and
then have this go bad on them afterwards.
If you believe that conducting research to
find the best property opportunities is boring then you need to change your
attitude on this. I get excited about performing the research because I know
that it will uncover property gems for me that few others will find.
Never let your emotions take over with a property
purchase. You must keep your feet on the ground at all times. If you are
looking for a buy to let property then find out if the property is in the best
location. What are the average rents for this area? Are there similar
properties in the same area that people rent? You need to know the demand is
Demand is essential whatever property
investment strategy you are using. If there are very few people interested in
buying properties like the one you are considering then you will have a tough
time selling it no matter how good a restoration job you have done.
So research and then do more research. It
is one of the best ways to minimise your risk with property investment.
Look at the Property before you Buy it
Surely this is stating the obvious? Well
there are a couple of scenarios where this certainly applies. If you want to be
a successful UK property investor in today’s market you need to be prepared to
look beyond your local area. This is particularly true if you live in the South
East of England.
Towns and cities in the midlands, the North
West of England, Wales and Scotland are now providing higher yields and better
capital growth opportunities that exist in the South. Although it is possible
to purchase a property in a far away location without seeing it I would not
Yes you can use the Internet and technology
to purchase a property easily these days but I strongly recommend that you view
a property that you want to buy at least once.
A lot of property investors are using property auctions and it is
essential that you view all of the properties that you are interested in making
bids on first.
There are a number of horror stories out
there about investors buying properties at auctions without viewing them, only
to find that there were significant defects and the whole thing was a bust for
them. Don’t let this happen to you.
If you don’t take at least one look at a
property then how can you estimate the amount of work that needs doing to get
it up to scratch? Don’t rely on others to tell you this. Always view a
potential property yourself.
Consider Different Areas
I have already mentioned this but this is
not something that I just recommend for better returns, it is actually a good
diversification strategy. If you have all of your properties in the same area
(city or town for example) and there is a major problem in that location, such
as a large employer deciding to move elsewhere, then you are going to be in
When you have properties in different towns
and cities across the country then you are diversifying your risk. OK taking
care of the properties is a bit more challenging but you should be able to find
good people to do this for you everywhere.
House prices vary in different areas. If
one city experiences an upturn in house prices then another may experience a
downturn. So think multiple areas for your property portfolio so that you
minimise your risk.
Invest in Different Property Types
There are a number of different types of
property available. Most investors go for houses but there are flats and larger
properties that you can convert into HMO’s as well. When you have a property
portfolio that has different types of properties in it then you provide some
protection against regulatory changes etc.
I have a mixture of properties in my
portfolio. You may know that I like HMO’s because of the potential returns that
they offer. But I don’t just have HMO properties. I recommend that you do the
Look for Properties below market value
You may think that I am stating the obvious
here but a property that is seriously under market value and worth pursuing is
fairly rare. When you come across these kinds of opportunities then I recommend
that you act fast and buy those properties.
This is certainly a good way to lower your
risk. Of course you need to run the numbers on the property and estimate what
it will cost you to get it ready for the market. Just don’t dither on these
golden opportunities because you won’t get that many of them.
Find a Good Mortgage Broker
The right financial deal can really help to
minimise your risk. Unless you intend to use cash for your property investments
then having a good mortgage broker is something that I highly recommend.
A good broker can find you deals that banks
and building societies cannot match. They can save you a huge amount of money
over time. If you are in the buy to let space then find a mortgage broker that
specialises in this area.
Keep your finger on the Market Pulse
With all of the information available to
property investors these days it is not too difficult to keep your finger on
the pulse of the property market. I am not just talking about your local area
here but across the country. A lot of property investors have become unstuck in
the past because they didn’t take account of property market conditions.
Although the UK property market has a good
history of growth there have certainly been some down times where prices have
fallen considerably. You need to anticipate these changes and use them to your
When you know the market well it will be
easier for you to predict a fall in house prices and make a decision to sell
early. The same goes for predicting a rise in prices and purchasing all of the
properties you can at a low price to make the best returns.
At the end of the day spreading your risk
with property investment is the best way to go. I cannot emphasise enough how
important it is to do your homework thoroughly with each deal. I have backed
out of deals that looked really good on paper but in reality were not.