If you read any financial or investment blogs, then you’re almost certainly going to come across one post or another showering praise on property as the best possible investment. Everyone talks about how it’s one of the most reliable and lucrative places to put your money, even if you’re not especially knowledgeable or experienced when it comes to investing. And yet, is that actually true? Just because it’s conventional wisdom, does that mean that it’s accurate? It’s a much more complicated question than you might think and one that doesn’t really have any set answers. However, when it comes to the kind of financial investment that property requires, you really shouldn’t try and leap into it without a full understanding of what it is that you’re getting yourself into. With that in mind, here are some of the risks and challenges that you’re likely to come up against when investing in a property.
The cost of borrowing
Unless you’re the kind of incredibly lucky person who has either been left a property or is in the position to buy one outright, you’re almost certainly going to have to take out a mortgage. Now, it shouldn’t really be much of surprise to anyone that mortgages are a source of a lot of tension for many people. Since the financial crisis of the late 2000s, the idea of being able to take out a mortgage has become less and less realistic for many people. Of course, that doesn’t mean that it’s impossible, far from it, but it is something that you need to consider carefully. Being aware of things like your credit score as well as your potential debt to income ratio is incredibly important if you want to be able to take out any mortgage successfully. Sure, if all goes well then you’ll be able to pay off that mortgage and then some but the initial cost of actually buying property is not something that you should ever ignore.
The uncertainty of the market
When people talk about “the market” it can often feel rather confusing. After all, the market exists in this strange nebulous realm where it doesn’t exactly exist, but it’s still incredibly important. The most important thing for you to remember is that the market is always changing. House prices are almost never fixed from one year to the next, and sometimes prices can fluctuate even more frequently than that. When it comes investing in and selling properties, picking your moment can mean the difference between something incredibly lucrative, and something that is almost certainly going to leave you in a dangerous financial position. It can be nearly impossible to predict what the market is going to do next but being as informed as possible can help you to avoid buying a property right before prices crash or selling during a period where no one is interested in purchasing properties.
The costs of maintenance
Of course, it’s not just the cost of actually buying the property that you need to think about. If you’re going to become a landlord, then you have a lot of financial responsibilities on top of that. This is where the choice of property comes into play in a really significant way. You might see an older home, need of repairs, that is going at an incredibly decent rate and assume that you’ve found a great deal. Well, it’s a good idea to slow down and think about how much that property is going to cost you in the long run. If the property is cheap because of repairs that you’ll need to make, are you going to end up spending more further down the line? Or perhaps the kind of maintenance that needs doing is going to be small but frequent. Those kinds of expenses might not seem like a big deal, but that can add up much more quickly than you might expect.
The struggle to find tenants
If you want to rent out your property, then you’re going to have to find the right tenants. Now, depending on the climate and market at the time, finding tenants at all can be a serious challenge, but finding the right ones can be like trying to find a needle in a haystack. You need to not only find people who can afford the rent on the property but also tenants who will take decent care of it and aren’t going to cause you too many problems. Not only that but you’re likely to be on something of a time limit since an empty property is a complete and total money sink. Sometimes you’ll get lucky and find the right tenants straight away, and other times you’ll be left struggling to find anyone to rent your property from you.
Difficulty selling the property
Of course, your aim might not be to rent out the property at all but simply to sell it on at a profit. Or perhaps you’ve rented it out for a while but no longer want the responsibility of it and have decided to move on to something else. Either way, selling your property can often be a whole lot easier said than done. For one thing, depending on the way that the market is looking, you could end up making a lot less profit than you would like. Not only that but things like different times of year can have a huge impact on whether or not anyone actually wants to buy your property at all. Again, you might get lucky and find a buyer right away, but sitting on a property that just won’t sell can be incredibly frustrating, not to mention expensive.
Now, this is not designed to discourage you from investing your money in anything that you want, far from it. But if you’re not entirely sure of what you’re getting yourself into when it comes to your money then you’re putting yourself at more risk that you can necessarily afford. Of course, all investment comes with risk, but you should be willing to do anything you can to minimise it. There is nothing wrong with being as informed about something as possible and even if you decide to go forward into the world of property investment, you’re going to be able to do so in a position of genuine knowledge and understanding.