What Are The Risks?
This post was submitted by Sterling Woodrow.
Buy-to-let properties can be a great investment option for those sick of seeing their savings earnings them next to nothing in the bank due to low-interest rates. However, despite the fact that such an investment option has the potential to provide great returns, it’s important to remember that it is not without its problems and risks.
Perhaps one of the greatest risks associated with buy-to-let properties is getting a problem tenant. You might think it would be easy to evict a tenant that is destroying your investment property and failing to pay their rent on time, but the process can be lengthy and requires expensive correspondence with the courts. Of course, you can decrease your chances of encountering a problem tenant by vetting all potential tenant thoroughly.
Another risk that makes people wonder “Is buy-to-let worth it?” is the volatility of the real estate market. It might seem like property prices in the UK will do nothing but increase in the coming years, but there is always the chance of a housing market crash. You have to remember that the political climate in the UK at the moment is heated and no one is certain how Brexit will affect many industries. There is a chance if the pound falls that foreign property investors will try to cash out early and flood the market, sending house prices falling.
Buy-to-let investors who are prepared to hold onto their investments for the long term are almost guaranteed to see good returns. Not only do they earn an annual income from rent payments, but the value of their property is certain to increase over the decades. Many people would struggle to give a definite “Yes!” to the question “Is buy-to-let worth it in the short term?”, however.
One of the best ways to reduce your risk in the buy-to-let marketplace is not to over leverage yourself. With banks offering 100% mortgages to buy-to-let newcomers, many people end up falling into a trap and having to sell their investment at a lose. You might be able to afford the mortgage repayments today while interest rates are low, but if rates increase, could you still afford the monthly payments? Would you be able to cover the repayments in the event that your property was vacant for a couple of months? Those are two important questions you need to think about before taking out a very large buy-to-let mortgage.