Although property investment can be relatively safe, there are certain risks inherent in the investment process. To ensure a positive outcome, it is always important to understand and manage these risks. The success will thus always hinge on an effective risk mitigation strategy that you have to think about before buying your investment property.
1. Economic Instability & The Property Market
Your property investment will greatly depend on current and future economic conditions. Property prices and rental yields can be cyclical, and thus if you are planning on a long term investment, achieving positive cash flow constantly might not be possible. Property prices might decrease, property appreciation might not be as expected. While you cannot predict the future, you can make sure that you have an understanding of the risks involved in your investment, by employing due diligence, and researching the property market thoroughly. Economic developments, political stability and new investments in your chosen area for example are always positive signs.
2. Slow Property Appreciation
While house prices are said to double every decade, this might not be the case in times of economic recessions. You will thus have to have the resources and patience if you are planning for a long term investment. You can also achieve higher levels of property appreciation if you manage to buy an investment property below its market value. A BMV property can thus represent a safer long term investment that has better chances of bringing you high yields.
3. No Tenants
If you are investing in a buy to let property, tenants are the backbone of your investment. It is thus essential to avoid long void periods. One way of solving this problem is if you are prepared to lower rents if necessary. By lowering the rent, you could find tenants much more quickly, and would not potentially lose out on 2 or 3 months of rental yields. By practicing due diligence and buying your rental property in a high demand area, you can also improve your chances of getting stable tenants more quickly.
4. Unforeseen Costs
If you are investing in a buy to let property, you will have to count on unforeseen repair and other costs. It is thus important not only to take out a tenant insurance, in case your tenant doesn’t pay, but to get full insurance for the property and to have the financial resources to be able to cover any additional costs.
5. Problems with Reselling the Property
Once you want to resell your investment property, finding a buyer is never a certainty. If you plan your property investment well, and choose with foresight, you should be able to eventually find a suitable buyer. Always try to choose a property in a stable area with high demand.