Buying investment property * biggest mistakes property investors make * how to protect yourself from losing money when investing in property

Even the most experienced of property investors make mistakes when investing in property and even the most experienced will find themselves over exposed when market conditions take a turn for the worse. There is only one sure fire way to protect yourself from losing money when investing in property and that is not to borrow money. That way, even if you make a complete idiot of yourself and pay over the top for a property or fail to find a tenant, property prices drop or mortgage interest rates rise, so long as you don't sell up and hold on, you won't lose money. Not counting of course the interest you would have earned elsewhere.

Start of article about investing in property.

Previous page about how to buy investment property.

Obviously, most aspiring property developers cannot just go out and buy property without borrowing money but I will explain how you can get yourself into this position within a couple of years.

Right now, there are thousands of UK buy to let property investors who are sitting on properties that they have mortgaged and remortgaged their portfolio to buy more property, blindly continuing to expand without any consideration of what is likely to happen in the future. A year ago they most likely had a portfolio valued at several million pounds with mortgages covering 80% to 85% of the market value. On paper, they probably felt they were millionaires and it was a blind belief in their ability to keep printing money they kept them and their bank continuing to remortgage and reinvest.

Suddenly, as if out of nowhere, the sub prime lending market has caught a cold and no longer prepared to lend. Property prices are beginning to fall, rental incomes are falling and mortgage interest rates are increasing. Finding their lower interest fixed rate mortgages coming to an end and unable to find a lender prepared to entertain a remortgage and sitting on properties that they cannot find a tenant to cover the mortgage repayments, these property investors are in the shit.

They may have had a property portfolio valued at ten or even a hundred million pounds but with only 15% to 20% equity, they were actually technically bankrupt before things went wrong. Exposure of this nature doesn't leave much room for error. A few missed rental payments, a notch or two added to the mortgage interest and a few points off the property value and you move from a profit situation into a projected loss. Run this scenario across a ten or fifty properties for six months and our millionaire property investor becomes a bankrupt owing millions.

HOW TO AVOID THE DANGERS IN PROPERTY INVESTMENT

Let me first explain that I own a property and land portfolio valued at about three million pounds. Hardly the biggest investor on the planet and someone that most property investors would consider small fry. However, the difference between me and other property investors is that all my property is unencumbered; I don't have any mortgages; every brick and tile is paid for; I don't owe a penny to any bank.

So, I am worth more than someone who has a portfolio valued at 15 million with a 20% equity and 80% mortgages. I don't have to worry about interest rates rising, rental incomes dropping or property prices falling. Obviously my rental income can drop but I don't have to worry about meeting mortgage repayments and I don't have to worry about property prices dropping because property prices have historically always gone up over any ten year period. I have zero exposure to anything that can affect the property market.

I have no doubt that I could have built a much larger investment property portfolio by borrowing money. In fact I did that once and lost everything in the last property crash. Property prices plummeted and I found myself sitting on a mountain of negative equity, unable to meet the mortgage repayments and unable to sell my properties quick enough to limit the damage. When you invest in property and the markets move against you, there is little you can do to move quick enough to solve the problem.

The last property crash lasted a few years and saw a steady decline, wiping between 40%-50% off the price of some properties. Even people who held 60% equity mortgages found themselves in trouble. Today, the banks have been so keen to lend buy to let mortgages, many investors are sitting on portfolios with 90% mortgages. The property crash that is coming is going to be faster, shorter and less dramatic but many property investors are going to get burned.

I have never borrowed money to buy a property since. My way is slower, more cautious and provided you don't make serious mistakes, far safer and virtually guaranteed. This is how I went about building my property portfolio.