Can You Lose Money Investing In Property?

Property investing can require a LOT of money.  You have to purchase somewhere, pay legal fees, renovate it, advertise it, the list goes on.  With all the online adverts offering to sell you courses that will help you become a successful investor you might be wondering if it’s possible to lose money investing in property.

Investing in property carries the same risks as other investment types. You might make money, you might lose money.  Nothing is guaranteed, but with the correct research and planning, you can minimise the risk of a financial loss.

Unless you do something very wrong it is difficult to see a long term situation where you don’t end up making money.  Real estate is a form of investment that will always have value, even during a market crash. The only way to lose money in property is if you do not properly research your investment or if you do not correctly manage your property.

What is Real Estate Investing?

I bet you’ve heard of the stock market and that people can invest in companies, so is property investment a similar thing?

Real estate investing is the purchase and ownership of property with the intent to earn income from the rental or sale of the property.

There are two methods of making money from the investment: Purchase somewhere, add value via renovation and then sell at a price that covers all costs and makes a profit.

Alternatively, investors, like myself, will purchase a property, renovate it, and then rent it to tenants for a number of years, collecting a monthly rental income until we decide to release the invested money by selling after a period of time.

The first method is more commonly known as flipping and is usually done by those who want a quick return on investment.  You add the value due to the renovation, but that’s generally the only value added. 

The second method sees you hold the property for a number of years and has the advantage of providing income through rental, increasing the house price through renovation and also seeing an increase in value due to the general trend of house prices increasing over time.

Like the stock market, it is important to do your research before getting into real estate investing, pick the wrong location or pay the wrong price and you are set to be in a much worse position than those who get it right.  It’s therefore important to stay up-to-date on current trends in the market, so you can make informed investment decisions.

Unlike the stock market you can’t get started with just a little money, to experiment and learn how things work before investing larger amounts.  The initial funds involved make this something you need to approach cautiously and seriously.

I would strongly recommend you speak to a financial adviser if you’re new to the housing market.  Yes, it costs money to consult with experts, but buying financial advice up front can save you a lot of money if things go sideways with your investment opportunity.

The Pros and Cons of Investing in Real Estate

There are pros and cons to any investment, and real estate is no exception. Here are some of the most important factors to consider:

Pros:

  • Real estate offers stability and security; people will always need a place to live;
  • There is potential for appreciation over time;
  • You can use leverage to buy more property with less money down;
  • Renovations can increase a property’s value significantly.

Cons:

  • Real estate is not liquid; it can take time to sell a property, especially in a down market;
  • There is always a risk associated with investment, as values can go up or down, and you may not get your money back when you sell;
  • It can be difficult to find good deals in hot markets;
  • If you don’t have tenants you’ll have to cover all costs.

That final point is especially important if you only have a single property rather than a property portfolio.  Building up an investment portfolio also builds up a level of protection. If one site is void (i.e. no one is paying you rent), the others can help cover the costs until the situation is rectified.

5 ways you can lose money investing in property

Investing in real estate has been one of the most lucrative investments I’ve made. But there are many things you need to consider before you invest in property.  Here are 5 ways you can lose money:

Lack of research before investing in a property

It’s important to know as much as possible about the local market, what similar properties are selling and renting for, and what potential growth opportunities exist in the area. Failing to do your homework can lead to overpaying for a property, or investing in a market that is on the decline.

Also, be mindful of purchasing somewhere without getting it professionally checked over.  A detailed survey may add to your initial costs, but if it highlights structural problems that would otherwise have been hidden it can be a huge money saver.

There are many professionals who can help you make smart investment choices, and it’s always worth paying for their expertise. Trying to go it alone can lead to costly mistakes that could have been avoided with a little guidance.  Also see: Getting started

Thinking property investment is short term

Don’t invest in a property with the hopes of making quick cash as the chances are you’ll be disappointed. Instead, think long-term and be patient; real estate investments typically take time to pay off.  You need to think years rather than months for the maximum payback.

It’s therefore important to ensure you’ve correctly planned the financial side of the investment.  Do you have enough to purchase and renovate a property?  If you take out a loan or mortgage can you meet the monthly repayments if you’ve no rental income?  Have you factored in other costs such as legal fees and gaining tenants?

There is a lot of outgoings to get things set up, are you comfortable with the level of risk involved.  Getting any of these factors wrong can lead to you quickly burning through any remaining savings you have.

Neglecting property repairs and upgrades

You might think ignoring repairs and upgrades would save you money, but this would be a very short term way of thinking.

Property values tend to rise over time, so keeping your investment in good condition is important. If it falls into disrepair, it will likely be worth less than if it were well-maintained.

Average house price, UK: January 2005 to January 2022.  Average UK house price increased to £274,000 in January 2022.
Average house price, UK: January 2005 to January 2022*

In addition, neglecting repairs can lead to bigger problems that will cost more money to fix in the long run.  Neglect also sends a signal to tenants that you don’t care, and they may move out.  A poorly maintained property can be hard to fill, leaving you covering all costs.

Make sure you keep up with regular repairs and upgrades to keep your property value high and avoid costly repairs down the road.

High Vacancy Rates in your rented property

I’ve already mentioned this a few times, it can be a problem that results from other problems you fail to address.  The reason I became a landlord with a portfolio of rental properties was to earn income from the properties.  

Your tenants are your customers, without them, you’ve just got an empty house.  Imagine being a shop owner that never has any customers.  You still need to pay for the shop, the utilities etc, but you don’t have any customers paying you money to cover those costs.  

Experienced investors know the key to successful long-term investments is to keep the property filled with paying customers.

If you’ve correctly researched the area and know there is rental demand, and if you keep the place in great condition, you shouldn’t face a long term period without income.

And don’t see a short term vacancy as a negative, that’s your chance to get in the place and refresh it ready for the new tenant, or perhaps invest in some major renovations work, such as a new kitchen, to increase the value (both rental and overall property value).

Problem Tenants in your rented property

Worse than no tenants are bad tenants.  Those who refuse to pay, refuse to leave and are potentially causing damage that will require you to pay to put right.

If the situation can’t be resolved quickly you’ll find the bills soon start piling up, especially when it comes to appointing legal help.

Make sure you have a good screening process in place, either one you carry out or one you outsource to professional letting agents.

The key takeaway

Yes, it is possible to lose money investing in property, but the financial risk of loss is reduced if you research and plan your approach.  Paying for investment advice and covering extra legal costs might seem like unnecessary money out, but trust me when I say the cash savings made by not doing these simple steps can be dwarfed by having to fix problems later down the line.

As the saying goes, failing to prepare is preparing to fail.

Source

* HM Land Registry, Registers of Scotland, Land and Property Services Northern Ireland, Office for National Statistics – UK House Price Index

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.

LEGAL INFORMATION

This site is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. We are compensated for referring traffic and business to Amazon and other companies linked to on this site. We may also do this with other affiliate schemes.

Light up a north facing room x
Light up a north facing room

You May Also Like…

Change Pricing Plan

We recommend you check the details of Pricing Plans before changing. Click Here



£2030 daysPay Per Listing0 regular & 0 featured listings



£4030 daysPay Per Listing0 regular & 0 featured listings



£12030 daysPay Per Listing0 regular & 0 featured listings



£25030 daysPay Per Listing0 regular & 0 featured listings



£2500365 daysPay Per Listing1 regular & 1 featured listings



£600365 daysPay Per Listing0 regular & 0 featured listings



£220365 daysPay Per Listing0 regular & 0 featured listings



£110365 daysPay Per Listing0 regular & 0 featured listings



£1200365 daysPay Per ListingUnlimited regular & Unlimited featured listings



£440360 daysPay Per ListingUnlimited regular & Unlimited featured listings



£220365 daysPay Per ListingUnlimited regular & Unlimited featured listings



£Unlimited daysPay Per Listing1 regular & 0 featured listings