How To Secure Yourself When Investing In Property
Last updated 31/07/2018
When investing in property there can be high returns, though with a high return comes high risk, hence with any investment it is worthwhile identifying the risk and what you can do to minimise it.
Here, we look at how to secure yourself when investing in property.
Do your research
Before you invest some of your hard earned cash into a property, it is essential to do your homework.
Carrying our your due diligence could be the difference between you receiving high returns on your investment or being left with a property that has a minor margin to make profits on the rental yield, making you a loss.
One of the ways to secure yourself when investing in property is to research the property market. You can notably the location of the property and look at the future capital growth in the surrounding areas.
- Are house prices dropping and is there a good rental yield in the area?
- Is the location up and coming with new developments planned or is it nearing the end of its life cycle?
Being aware of the worst case scenarios and risks will help you prepare for them.
Speaking to lettings and estate agents in the area will also give you some valuable information to help secure yourself when making your investments in property.
Make sure you know what tax will apply, and how much insurance you will need to cover yourself if things go pop. (Read our article on Stamp Duty Land Tax).
Research and relationships
Just like a property developer has to carry out their due diligence on a project and ensure that all the numbers add up when it comes to the crunch, one must protect them self as much as possible when making an investment in property.
If you're looking to invest with a company; put some time aside to carry out some research on the company who will be managing your investment.
- Do they have a proven track record of successful property completions?
- Are the returns realistic? Is it pie in the sky?
- How does the companies reviews stack up in the industry?
- Have they always paid out?
- Have they had any bad years or made a loss?
These are essential questions that you should be asking in order to cover yourself and mitigate the risk involved when investing in property. .
Diversify your portfolio
One of the ways you can secure yourself when investing in property is to diversify your portfolio.
If you have investments in different types of property, buy to let, commercial, residential in different areas then if the worse was to happen and you had a low performing property, the other properties which are maintaining performance would act as a financial buffer and soften the blow.
Capital City locations will have higher rental yields, and may be likely to outperform those in other areas, which will help minimise the financial risk should something like loosing your job, not being able to rent out/ sell the property, or if interest rates increase.
Making sure you have the correct and necessary insurances is another way to secure yourself when investing in property.
If you plan on letting the property out you will need landlord insurance which will protect you if the tenant cannot pay or the property sits empty.
You need to make sure the renter’s have their own insurance to protect their belongings so if there was a fire or flood they could make a claim on their own insurance rather than yours.
The property itself will need to be insured, some mortgages come with landlord insurance but we would advise you seek council from a professional who can tell you exactly what you need.
Being insured for the majority of eventualities will help mitigate the effects of risk.
To secure yourself from risk make sure you have not been negligent. If a tenant gets hurt in the house due to something you knew about they may be able to sue you.
Keep the house clean, safe and well maintained and you will find your tenants will reward you in the long run by staying in the property and providing you with long term rental yields.
Don’t cut corners to keep on budget. Ensure you have all of the correct insurance should a major structural fault occur or acts of God such as a flood.
You don't have to own property
There are ways to invest in property without buying one and thus secure yourself. You could look to trade property leads and sell them to investors, look at sourcing property and selling the deals on, or to reduce the risk you could invest as part of a joint partnership.
There are other ways to invest such as JaeVee's equity platform, have you taken a look?
For further information and blogs have a look at the JaeVee Blog.
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We would advise you to seek independent financial advice before investing. Capital at risk when investing in property.