Up until the credit crunch it wasn’t that difficult to make money on property. In the main, property prices seemed to be going up every single year, far more than anything else you could invest in.
However, with the credit crunch hitting property prices by 18% in the UK and 19% in Plymouth, since then, making money from property has required a much more savvy investor.
For some, these falls meant they lost everything - in some cases even their own home - as if you do invest in property, borrow heavily and prices fall, this can lead to properties tipping into negative equity, making it difficult to re-mortgage and in some cases forcing landlords and buy to let investors to sell at a loss.
However, the good news is, if you know the risks of property investment and even better, how to mitigate them, it is always possible to succeed, even if the market isn’t performing too well.
Here’s five ways to reduce the risk of property investment:-
1. Think 15-20 years
As a landlord and buy to let investor, property makes you money over time. It’s often said to invest in the stock market you need to be investing for five or more years, but with property, due to the costs to purchase and sell, successful landlords tend to hold onto their investment for 15 years or more. And, if you’d invested in 2005, the average property price in Plymouth would have been £132,000 whereas today it would be worth just under £176,000, a rise of 33%.
So when choosing a property to invest in now, it’s important to make sure it will let for the next 15 years or more and be the kind of property that grows in value and is easy to sell in the long term.
2. What do you want a property to deliver?
As with all types of investment, they deliver different things. Some are great at delivering income, such as HMOs, while other properties just cover their costs when renting, but achieve good property price growth. So, if you are looking for income, a property with lots of rooms in a particular area of Plymouth might be the best decision, or for capital growth, a smaller 2-3 bed property in an area popular for schools might be the right one for you.
3. Speak to local experts
As an agent, we work daily in the property market and have done for many years. This means we have seen property prices go up, down and stay the same and know instantly what a property will rent for. As such, if you want to know what to invest in or are reviewing your portfolio and want to maximise its returns, our expert team can help. We aren’t just here to let properties, we really understand how to make sure as a landlord and buy to let investor, your property delivers the returns you are hoping for.
4. Know what to do if the market doesn’t perform well
In the credit crunch, property prices fell by 19% in Plymouth, so it’s worth thinking about ensuring you have a big enough deposit which would protect your property if prices fell at this level again. Currently they are now 9% higher than they were at the peak of the market in 2007/8, so have more than recovered these losses, but if prices fall, you always need to be able to re-mortgage if the bank you are with goes bust or pulls out of buy to let.
From a rental perspective, rents can fall, but this is usually temporary and in this scenario it’s important to think how you can maximise your property’s income – for example renting rooms rather than a whole property. Alternatively, tenants will always pay more for a quality property than one which looks tired and in need of renovation and in addition, people with pets are happy to pay a bit more rent and tend to stay for a long time, so worth considering to boost your rental returns.
5. Know the law
Some people will sell you the ‘dream’ of buying a property, letting it and sitting back and watching the money roll in. In our experience, that’s not quite the case. Whether you are buying a property to let or renting it out, there are over 400 rules and regulations you have to abide by and these can change from one year to the next, so it’s essential to make sure you know or have a lettings expert who can guide you through the purchasing and lettings process so you are always letting a home legally and safely.
If you have a portfolio and want to work out what to do next or are new to property investment in Plymouth, do contact myself and the team so we can help you mitigate property investment risks and deliver a successful investment.