Property Risk Management

Risk - the word that's most likely to scare off budding property investors in their tracks.

But confident property investors understand that, when handled properly, risk = opportunity.

So how can we protect our property investments to make sure we've got the best chances for property risk management?

The right price

The most important thing for managing risk in your property investment strategy is securing your property for the best price possible. If you pay too much, you'll be risking your profit margin.

To make sure you're playing smart, you should research how much comparable properties have sold for and the average area rent, through resources like the Property Data website.

You also need to keep track of the projected capital growth in your area. If you want to raise your chances of getting property the perfect price, then there are a number of ways to get below market value: - Off plan property - Off market property - Buying at auction

Due diligence

Property prices aren’t the only aspect of your due diligence that will protect your investment.

To protect yourself properly you should research the breadth of the market. Look at employment levels, and any environmental concerns such as flood risks. Speak to letting and estate agents in the area - and perhaps even locals - to gain valuable insights into the area that you can’t find on the net.

Lastly you’ll need to have all the taxes covered, and have a plan B, C or even D for if things don’t quite go to plan.

And remember - just because the odds are great doesn’t mean they’ll always stay that way, so try to predict whether or not it is at the end of its life cycle - it might be better to target up and coming areas such as Birmingham, Brighton and Coventry.

Company due diligence

Your property isn't the only thing you'll have to research to protect your investment.

Always research the company you're looking to invest with.

Take a look at their track record on companies house, look at their reviews online - and be wary if they don’t have any, or they’re all too good to be true.

Have they always paid out? Are their returns realistic? Have they ever made a loss - and how did they bounce back?

Assess the market

Getting the timing right is also a big part of property risk management - you should sell in a market where you have a high range of buyer demand and a good level of transactions.

You’ll also need to be confident and know how to read behind the lines - listen to your own experience and the experience of other property investors instead of any mass panic.

Rising interest rates

This is one of the biggest market factors you'll have to keep an eye on, as it could turn an initially sound mortgage investment into something shakier by hiking up your repayments.

While this doesn’t look likely to happen any time soon, you should still cultivate a small margin between your mortgage repayments and the rent payments so that you’ll be covered if the worst should happen.

Rent arrears

This is a landlord's worst nightmare, but a relatively easy risk to protect yourself against. Make sure your lettings agent or property manager undertakes the relevant background checks.

You could also look into a rent guarantee scheme or try to see if your landlord insurance will cover unpaid rent.

Avoid negligence

With the government cracking down on 'rogue landlords' harder than ever before, you have even more of a duty to protect yourself from being accused of negligence.

If a tenant hurts themselves in your house due to a problem you knew about they could sue you.

Maintain the house well and your tenants will reward you by staying in your property for longer, cutting the costs and hassle of securing new tenants.

Secure insurance

Securing insurance is another no-brainer for managing risk.

As well as landlord insurance to protect you if you’re planning to let out your property yourself, you'll want to encourage your renters to take out their own insurance so that in the worst case scenario, they'll claim against their own insurance rather than yours.

Lastly, you’ll need to insure the property itself.

Maintenance costs

Make sure you’ve made an accurate assessment of your maintenance costs, and always keep in mind that property investment is meant to be a long term arrangement, so stay on top of upkeep and household appliances & factor these into your budget.

Make sure you have a survey report & home buyer's report. While you might not see any maintenance costs for months, you’ve got to remember that these costs have a way of hitting you all at once, so it's always easier to deal with it if you've already planned out a contingency fund.

Liquidity

The reason to go into property for the long haul is because it reduces the risk of losing your cash.

Thrifty long term investors with the savvy to keep their profits tucked away for reinvestment have the best chance of weathering any market storms.

Advanced property risk management requires you to diversify your property portfolio to spread out your liquidity. By having a variety such as buy to let, buy to sell, build to rent and commercial properties you'll have a good variety of assets to profit for or sell to buffer your profits.

Hedge

Another way you can protect your property investment is by hedging. You can achieve it through a variety of methods that will boost your liquidity: - Sell some of your equity - Sell some direct property exposure - Reduce your amount of borrowing by prioritising existing debt - Sell certain assets while there’s good market demand

One last thing...

Investing in property without buying one yourself in a hands-off approach also reduces risk. For more property investment information have a look at the JaeVee blog.

Please note this blog post is not to be considered as investment advice. We recommend you seek independent financial advice and conduct your own due diligence before making any investment.