November 2nd, 2015.
The Main Risks of Property Investment
Here at Pure Commercial Finance, we have several financial brokers who can help you find property investment finance. Our experts also talk a lot about buying a house as an investment on this blog. But like with every opportunity, there are some risks associated with investing in property. So, is real estate a good investment for you? Let’s find out by analysing the risk.
What Are the Risks of Investing in Property?
You’ve probably heard that many people feel property investment is as safe as houses. But let’s not forget, homes do get burgled on occasion and no investment is guaranteed to be safe. However, putting your money into bricks and mortar is one of the best long-term options for your cash.
Read more: The Ultimate Guide to Real Estate Investment
With this in mind, let’s review some of the most prominent risks involved with property investment to help you decide if it is a viable option for you.
Fluctuating Property Prices
It is easy to assume that with growing property price averages that buying a property and sitting tight will guarantee you a profit. But things aren’t always that easy. Remember the boom and bust of 2007/2008? Some properties were worth half their original value after the crash and still haven’t recovered to their previous high.
There are also costs such as maintenance and refurbishment to consider, as well as a ceiling value. Some properties simply will never get more than a certain amount when sold due to the area they are located in. These are all things to consider when buying property.
Inability to Find a Tenant
Of course, buy-to-let arrangements are an effective method of bringing in a steady flow of cash to cover maintenance costs or mortgage repayments. But what if you can’t find a tenant to rent the property for the price you want?
An empty property, whether commercial or residential, will soon end up costing you a small fortune rather than being a tidy earner.
Tying Your Money Up
Be careful not to over-invest in property. Putting the majority of your money into property may seem like a good investment, but if your money is tied up, it will be hard to get back out if you suddenly require funds. After all, selling a property takes time.
To combat this, it may be worth creating a portfolio of multiple investments (such as shares or bonds) to cover all eventualities.
Remember, there are other costs associated with buying a property. There are estate agent, surveyor and conveyancing fees, as well as stamp duty and council tax to pay; all of which can amount to around 10% of the property cost.
These fees should be accounted for when analysing the possibilities for value growth, as a poor purchase choice could mean that, despite rising prices, you end up breaking even when you sell up.
If you intend on investing in property, then it is essential to have the financial capabilities to keep up with repayments. If you cannot make the monthly mortgage costs, you may receive last demand letters and eventually the property may be repossessed.
Buying a House as an Investment
So, is the cost of investment property worth it? Well, for a lot of people, yes! But before you make any big decision about your money, it is important to do your research and be informed.
We have plenty of informative and helpful blog posts on this subject to help you learn as much as possible about property investment. Plus, our team of property investment finance experts are always on-hand to give a more tailored answer to your questions.
Contact us today to find out how we can help you achieve your property investment goals.