November 2nd, 2015. Ben Lloyd
The Main Risks of Property Investment
Here at Pure Commercial Finance we have a number of financial brokers who can help you find investment finance. And we talk a lot about buying a house as an investment on this blog. But like with everything else, there are some risks associated with this. 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 how many people feel property investment is as safe as houses, but let’s not forget, homes do get burgled on occasion. No investment is guaranteed to be safe and grow in value. 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
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 value 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 way of bringing in a steady flow of cash to cover these maintenance costs or cover any 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 be a good investment, but if your money is tied up here 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, 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 repayments 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.
Article By Ben Lloyd
November 2nd, 2015
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben