Like many sectors, investing in property comes with many potential risks. There is money to be made in property, however this comes at a price. It would be naive to think that you can simply reap large rewards as a landlord without any pitfalls. Luckily, there are many ways to mitigate the business risks.
What are the possible risks?
As a landlord, one of the most common risks is that you will find yourself with a rogue tenant-they may not pay their rent or seriously damage your property. You could be forced to evict a tenant through the courts if things cannot be resolved. Aside from troublesome tenants, there are many financial risks, such as interest rate rises, government legislation and property price depreciation, which can affect your bottom line.
How can you protect yourself against these risks?
Firstly, prevention is always better than cure. You can mitigate some of these risks to a certain extent by being proactive.
As far as problem tenants go, you have to understand that it will happen to you to you at some point and to factor this into your financial planning. Make sure that you carry out thorough references and credit checks on all of your tenants, and ask for a guarantor if necessary. It is always wise to have comprehensive landlord insurance in place which can protect from many of these issues. It’s also wise to carry out regular property inspections and carry out a thorough inventory at the start of the tenancy. If you chose to use a management service, it may be possible to put in place a guaranteed rent agreement so that you don’t miss out on rent.
As far as the financial risks go, it is always best to get professional advice to guide you through the potential pitfalls. For example, buying property at the lowest price possible and taking out a fixed price mortgage can go some way to mitigating risk, but it’s always best to act on professional advice. As far as legislation goes, there is very little that can be done about this, so it is best to always be proactive and aware of recent changes. As with so many issues, you can’t bury your head in the sand and hope it goes away. The property community is very helpful and it’s always worth getting advice from experienced investors along the way.
If you do experience a bad situation, be pro-active in dealing with the problem as things can escalate if left, and seek professional advice to support you in solving the problem. Keep lines of communication open and professional with your tenants at all times and factor in worst case scenarios into your business plan.