Do you know how to protect yourself from property investment risks? Property investment risks are commonplace and will always exist because in life, there is risk wherever there is action. You need action in order to make things happen. You need to learn how to cope with and manage potential problems. Although it's not listed below, Samuel says the biggest property investment risks are procrastination and stagnation. In other words, if you keep putting your dreams to the side for the sake of comfort, you'll risk losing the biggest opportunity of your life. Below are some key property investment risks and how to mitigate them:
No tenants means no cash flow and no cash flow means it's a terrible deal. In order to prevent this from occurring, you should do your research on the area to find out if there's sufficient demand for rental properties. Secondly, it's important that you speak with local estate agents to decipher whether they have potential tenants on their books, ready to go. If they don't, there might be an issue with the area or your particular neighbourhood which isn't attracting people to stay there. Is it far from transport links? Does the location have a bad reputation?
Having bad tenants is worse than having no tenants. If the house gets trashed, you're going to be paying for it. If the tenants move out after their kids drew on the walls, their pets dropped their mess everywhere and they generally didn't clean – you're going to pay for it. To prevent this from happening you should make sure your new tenants have been checked by getting references from their previous landlord. It's important that the reference comes from their previous landlord, not their current one because their current one might have an agenda. He might just want to get rid of them so he'll lie to you about their reputation. Secondly, get a credit check done and find out whether they have jobs which will sustain payments. Thirdly, you should arrange for a management company to come into the property to do a check a few times per year. If your tenants feel uncomfortable with this, that should ring alarm bells.
So, you got all excited, you did the calculations, you found a great deal and you went with it. Amongst all the adrenaline, you forgot to do a thorough check on the house. The last thing you want to find is a leaky roof, boiler repairs, damp, structural issues and other nasty problems. These will slow your business down and cost you dearly. To prevent this from happening, simply get a survey done. Samuel recommends an Independent Building Survey which costs around £300-400. The surveyor will check every detail thoroughly and report issues which you can either take on and fix or avoid and find another property.
Have you done your due diligence? Imagine there's a restriction which means you can't rent your property out or there's a freehold issue or a high risk of flooding. These are legal issues which could fracture your entire operation and add monstrous costs to your deal. You need to get a good solicitor to help you with this. From a post-purchase point of view, there are things you need to keep on top of as a landlord, such as gas safety certificates. If you mess this up, you might be sued as a negligent landlord. Legalities and rules change all the time in property. What works today won't work in the next decade so you need to be fluid and creative in order to adapt your strategy.