Property investment while you sleep easy at night
Property investment is a lot like life: there’s an element of risk. Whatever it is you do in your daily life, there will be risk involved. Though you probably don’t realise it, every minute of every day you’re working hard to minimise life risk. Mostly, the risk strategies you take are done without thinking about them. You look both ways when you cross the road. You wear a seatbelt in a car. You step onto a non-slip mat when you get out of the bath.
You might consider that investing in property is a risky business. After all, no risk no gain, right? The thing is, if you know the investment strategies to use, you can keep the upside of the best property investment opportunities and slash the risk element.
For example, property investment research helps you find the best places to invest in property UK – and that immediately reduces investment risk.
In this article, you’ll learn some simple strategies that are used by the most successful property investors to minimise investment risk.
What's your worst-case scenario?
Your starting point when devising risk mitigation strategies should be to figure out your risk profile. You’ll need to think about how you feel about risk, and how much risk you’re happy to accept.
Some people not only accept risk but write it into their investment plans, without even realising it. I’m talking about the people who put their cash in the bank “because it’s safe”. Safe my backside! You’ll receive 0.5% or less in interest, while inflation decreases the spending power of your savings by 1% and more. It’s a guaranteed loss and a guaranteed strategy to poverty in later life.
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Assuming you want the opportunity for your money to grow and give you the lifestyle you desire, it will be necessary to accept some risk. Ask the following questions to help you discover your risk profile:
- What would you forego today to create wealth in the future?
- How do you feel about borrowing the maximum amount you can to invest for growth?
- If a property investment falls in value, will you want to sell it immediately, or do you understand that property prices move up and down throughout the cycle?
(Hey, why not download my book “The Property and Economic Trend Cycle” to learn how the best property investors make money throughout the property cycle?”)
It might help to talk through your hopes and fears with property experts, who will be able to help you hone the following strategies to come into line with your personal risk profile and property investment.
Build a property portfolio with a range of properties
Every property portfolio begins with a first investment, but once you’ve made this you might consider diversifying by purchasing a range of properties:
· Consider different locations
Every town, and even different suburbs in the same town will be at different phases of the property cycle at any given time. There is a host of property fundamentals (shops, schools, transport links, major employers and major investment) that combine to create investment potential, and these will determine both short-term and long-term investment returns.
By diversifying your portfolio across different locations, you’ll smooth the short-term fluctuations across your portfolio while maintaining its long-term potential.
· Consider different property types
Think about the type of property you’re buying, matching it up to your target market. If the demand for rental properties in an area is dominated by young professionals, the type of property that is likely to produce, the best gains will be different to that in an area where the highest demand is for retirees.
Use cash flow wisely
When you invest in property for the long term, you’ll be taking advantage of two of the most exciting things about property investment: leverage, and the potential to have someone else paying for your investment.
Positive cash flow will leave money on the table after all your costs (including your mortgage) have been paid. Negative cash flow means you’ll have to put some money in to keep your monthly income and expense in balance.
You might think that positive cash flow is the best strategy, but some investors deliberately invest in negative cash flow properties. For example, if I offered you an investment which, for £100 per month could build to £100,000 in ten years, how would that sound? You’ve saved £24,000 in total, and you walk away with a profit of £100,000. Some negative cash flow properties offer this type of potential when you also invest using leverage.
Calculate your cash flow, measure it against potential, and decide if the risk is worth it.
Be prepared for the unexpected
The one thing you can expect is the unexpected. Interest rates may rise. The central heating could break down.
Be prepared for this by maintaining a contingency fund. Build this up when your property is producing a positive cash flow, and you’ll also be prepared for those occasions when your investment property falls into negative cash flow territory (for example, if you have a void period between tenants).
Take advantage of landlord insurance
Landlord insurance is a must-have when you’re a buy-to-let investor. Shop around to get the best policy, and pay attention to the fine print. Different policies will have different conditions and different levels of cover. You could insure yourself against damage caused by tenants, and even non-payment of rent.
Buy in the best places to invest in property UK
Perhaps the best way to mitigate risk is to invest in locations where the property fundamentals are strongest, and the demand for property from renters and homebuyers is highest. Where demand is higher than supply, investment property valuations are supported.
Buy investment property at a discount
Finally, the property investor’s dream: buy at a discount. There are various ways to accomplish this. You could buy from forced sellers (for example, repossessions), though it’s often the case that such sales are in locations where there are high numbers of forced sellers, which depresses property valuations and could produce lower-than-average long-term growth.
Buying existing property that needs renovation is a strategy that has been made popular by certain television programmes. However, what you don’t hear about is the cost overruns, time out of the market while work is being done, and the higher costs of continuing maintenance often needed. You’ll need to factor all of this into your risk deliberations.
Off-plan sales offer some of the best property investment opportunities. The developments are often in the best locations (developers know their stuff too), and you usually buy at a discount from today’s price. Because the investment doesn’t complete until a given date in the future, if the property rises in the meantime you get to pocket the rise in value, too.
Invest with guarantees
How does investing with guarantees sound? Our property investment opportunities include a unique set of five guarantees (including rental income).
On the other hand, if you want a shorter-term property investment that includes guaranteed 8% rental yield and a 15% uplift on capital invested after five years, then a hotel room investment is the new opportunity for investors who want high income.
I like risk as little as the next man. I understand that to make the best gains there has to be some risk, but I don’t see why I have to take a big risk. The above are a few of the risk-reducing strategies that benefit our clients. Which will benefit you the most depends on your personal circumstances, risk profile, and financial objectives.
To discuss how we can help you achieve your ambitions while minimising risk, book a meeting with one of our property consultants today on +44 (0)207 923 6100.
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