What are the risks involved in property investment?
Hello, my name’s Bevan Mottram, owner of Kelham Square Property Management here in Sheffield.
What are the risks involved in property investing? It’s 2017, and tax and stamp duty for example, they’re on the rise this year for landlords. My advice would be before you even consider buying your first property, speak to an accountant, or someone qualified to give you specific financial investment advice. Everybody’s situation is different. For example, you might be self-employed. You might own a business and employ other people, or you might be employed. Everybody’s tax position is different, so again, before you make any investment choices, speak to your accountant or person qualified to give you that financial advice.
Interest rates currently are at an all time low. The Bank of England base rate, for example, February 2017 is a quarter point, so 0.25%, which is an all time low, but with other considerations to think about, such as Brexit, what does that mean? What does that mean for the interest rate? What happens if you make an investment today and then the interest rate shoots up overnight, which can happen? It may go from a quarter point, and it might shoot up to 3%, 4%. You need to factor in the interest rate.
Of the risk associated with property investing are the more well known. Your first one is arrears. What if, for example, the tenant stops paying you rent? Again, for whatever reason, the tenant may lose a job. They may become ill. Many factors why the tenant may stop paying you rent, but if they do, what do you do? If, for example, you’re in week six now, and the tenant still owes you rent, and you’ve not taken action as yet, things could get a little tricky, so you really need to be aware of rental arrears and how to deal with them.
Damages can be expensive, which is why it’s important to get a good tenant in the first place. Again, it is a risk involved in investing, for example, a broken lock, a broken door, broken glazing can all be expensive, and if you factor this in over the year on top of other financial considerations such as block management charges, letting agent fees, there are a whole host of fees to consider during that time of that investment.
Void periods, another thing to consider. Void periods are the amount of time your property isn’t paying you rent. Let’s say, for example, a tenant leaves. Everything is fine, that property goes back on the market. It may be that it does take a while for that property to let. It could be four weeks, it could be six weeks. It’s quite common, for example, a client to come to us with a property to manage and their rental income is, say, 475 pounds per month, but your actual mortgage payment on a monthly basis is 450. There’s a very small profit involved sometimes in property investment. Can you afford to be six weeks short of rent?
I really hope this short video was useful, and you’ve picked up some small nuggets of information that’ll help you along your property investment journey. If you decide that you want to pass over the management of that residential property to a qualified person or specialist, then please feel free to give us a call to chat over your needs and requirements. You can contact us 24 hours a day on this website, kelhamsquare.co.uk. On here, you’ll also find general information for landlords and for tenants, and you’ll also be able to browse our current properties to let. Once again, thank you for watching, and good luck with your investments.