Managing The Risks Of Property Investment

As with all investments, property investing carries risks. On this page Axis helps you to understand and manage the risks so that they are significantly reduced.

Here are the potential risks that we believe are realistic possibilities:

• Fall in capital value
• Fall in rental value
• Void period
• Tenant doesn't pay
• Unforeseen expenditure
• Rise in interest rate

As long as you make the right risk management decisions, then the profitability of your property portfolio will be much greater and any worry will be much reduced.

In fact Axis, when offering you property investment opportunities, has already considered many of the possible risks and eliminated deals that don't fit our conservative approach.

Here's how you can protect yourself against the possible risks:

1. Build a portfolio

As you grow a portfolio of property you will find that the risks naturally reduce. Say you have five properties. It is extremely unlikely that all your tenants will leave at once. And the rental across your portfolio may make up any shortfall. The biggest risk is when you have just one or two properties.

2. Complete Due Diligence

Make sure that your proposed investment ticks the boxes, which means completing proper due diligence. Axis completes substantial due diligence on every opportunity offered to you, but always double check and ensure that the answers to your questions have been satisfactory.

3. Never have to sell

The worst possible scenario is being forced to sell in a depressed market. Then you can lose your shirt.., and your pants. This is particularly true in the early days of ownership. So keep some cash in reserve just for a rainy day and make sure you never have to sell except when you want to at the top of a property cycle.

4. Be prepared to rent a little cheaper

Many investors try and stick out for the highest rental price. This just doesn't make sense. Imagine if you were asking £600 per month, but had one property empty for three months. Suppose a £50 reduction in rental meant it could have let right away.

What are the consequences of this? You've lost £1,800 of rent! It will take three years to recover it assuming you get the extra £50 a month, and the most likely result is that you will have to drop the price anyway to get the property rented.

It's highly unlikely that you will have to worry about void periods if you are realistic about the rent.  Take the advice of local professionals.

5. Consider fixed interest rates
For the first couple of years, when the rent mainly only just covers all the outgoings, many investors like to fix the mortgage rate so there are no surprises.

6. Consider tenant insurance
You can get competitive insurance which will cover the rent if the tenant doesn't pay. If your portfolio is large enough then this may not be an issue, and generally our clients' experience is that this is an infrequent occurrence. But for peace of mind you can insure.

7. Buy below market value
A core concept of Axis. Purchase your property at 15% to 40% below genuine market value and you create a buffer which provides an additional element of security just in case you do have to sell. This is one of the most important elements for reducing risk and we cannot emphasise this enough.

8. Make sure the rental yield is 'enough'
What is enough? Probably enough to cover the mortgage and all essential outgoings. That's often difficult to achieve if you are also focused on maximum leverage and want to put as little cash into the deal as possible. Consider each opportunity on its merits and if you choose to accept a deal with a monthly shortfall (not advisable in our view), make sure you can cover it without a problem.

If you, as an investor, take heed of the eight principles of risk management set out above, we genuinely believe that you will rarely be faced with a difficult situation or have your portfolio put at risk because of an unplanned event.

These principles don't let you off the hook of making good investment decisions! That's still essential. But they will take care of reducing your risk to a minimal level.

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