There’s a common misconception that property investment is an easy way to invest your funds in a risk-free way to increase them. However, that’s not the case. As an investor, you need to be realistic about the risks that come with property investment. Every investment carries an element of risk, and property investment is no exception, despite what you might have heard.
Of course, there is the argument that out of all the investment options, property investment is the safest as there is always a need for homes or business premises. While that is the case, it’s important to understand that investments do go south from time to time, because like all investments, property comes with a range of risks.
However, the upside to property investment is that there are steps that you can take to reduce the risk that comes with it – here’s how you can do that:
Look for the best financing option
Do you require the assistance of financing to buy your investment property? If the answer is yes, it pays to be choosy about the option you opt for. Whether that’s a short-term loan or a mortgage, it’s vital that you are smart about it. Ideally, you want to choose a financing option that doesn’t come with a large amount of interest – the lower the interest, the less you will have to pay. It pays to take your time looking for a financing option that offers the lowest level of interest possible. As when you only have a certain budget to work with, every penny counts.
Get the terms of the lease spot on
The key to property investment success is a lease that has the ideal terms negotiated into it. For example, what you want to consider is creating a lease that is fair for yourself and the tenants, and is also cost effective. For instance, in cases of commercial real estate, this would mean using an nnn lease – a lease where the tenant is responsible for paying a portion or all of the taxes, fees and maintenance costs of the building. Or, for example, with domestic properties, you should consider negotiating a clause that says anything that the tenants damage, they must replace. Or, that they are responsible for the payment of council tax and covering utilities.
Be clear on where the money is
When it comes to selecting the perfect property that is guaranteed to give you profitable income potential, it’s important to think about where the money lies. If you are going to put a large chunk of your savings into a property, it’s vital that you pick the right one. That’s why it’s important to determine whether domestic or commercial property investment is the best option for you. Look at the area that you want to buy in, the demographic of people, and what there’s a call for, and make your decision of property type based on that. If there are various commercial units empty, then a commercial property may not be the right investment option. Or, if there are lots of empty rental homes, a domestic property may not be a good idea.
You can never fully mitigate risk with any form of investment, but for property investment, it is possible to reduce it.