Once upon a time, property was billed as a “safe investment”.
Nowadays, it’s not necessarily the case.
Sure, house prices have increased phenomenally in many regions of the country. However, negative equity is still a thing in other parts – and this often gets overlooked.
Bearing this in mind, it’s crucial to take a strict approach when looking for your next investment opportunity.
Today, we’ll now look at some of the big risks that you need to look out for before you make an offer.
Risk #1 – Think with your head, not your heart
When looking for a property to invest in, you must think with your head, not your heart.
In other words, don’t be drawn in by an amazing location or a real “fixer-upper“.
Instead, you need to focus on the numbers and make sure that the investment makes financial sense.
Risk #2 – Don’t overstretch yourself
Another key risk to look out for is overstretching yourself.
In other words, don’t bite off more than you can chew.
If you’re taking out a mortgage to finance your investment, make sure you can comfortably afford the repayments.
And, if you’re using your own cash, make sure that you don’t put all of your eggs in one basket.
Risk #3 – Consider the risks associated with the property type
It’s also important to consider the risks associated with the property type.
For example, flats are generally considered to be higher risk than houses.
This is because they’re often harder to sell, and there can be issues with the lease or the ground rental charges that commonly cause controversy (although this appears to be easing).
Risk #4 – Don’t forget about void periods
When looking at an investment property, it’s essential to factor in void periods. These are periods when the property is empty and you’re not receiving any rent.
Just because the agent brochure states that the yield of a property is 8% – it doesn’t mean that this will be the reality. After all, what if a tenant moves out and the property is unoccupied for two months? Suddenly, that yield has reduced drastically because of the void.
Risk #5 – Be aware of the fees involved
In addition, there are several fees that you need to be aware of.
For example, there are stamp duty, legal, and mortgage fees.
And, if you’re using a letting agent, there will be management fees to consider as well. Then, there’s the cost of insuring the property – the list could well and truly go on.
All of these need to be factored into your calculations before ensuring that the investment is viable.
Again, it’s very easy to fall into the trap of believing that first yield figure you spot in the marketing brochures. In reality, you need to drill down into these numbers to put your own realistic spin on proceedings.