While news for property sellers has been positive in recent years, many novice investors, in particular, don’t like to consider the fact this isn’t a sustainable trend.

Buying homes in need of major renovation is the most common risky property investment.  It has both its pros and cons.  On the one hand, it will be a lot cheaper than buying a house that’s ready to be rented or sold right away.  However, you will then have to consider that the money and time spent renovating could exceed the costs of simply buying a completed property in the first place.

 

What to Do When Running Into Problems

With many people in the UK finding it increasingly difficult to obtain an affordable mortgage, it can be risky to commit so much time to a single project.  Property experts are saying that the government’s new mortgage restrictions will damage the housing market recovery we’ve been seeing outside London.  The demand for homes in your area could take a turn for the worse during the time you spend working on the property.  If you’re questioning whether you’ll meet your projected targets, you could consider selling the property unfinished to another buyer or a company that specialise in a “we buy any house” scheme.  The latter is a particularly useful tool for inexperienced developers, as they will offer a cash price on the property in whatever condition.

Consider the Risks of Investing in Risky Properties

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House by Amaury Henderick, on Flickr.  This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic License.

If you were able to buy the home outright and aren’t paying a mortgage, ‘waiting it out’ to see market developments may be worth considering.  However, if you’re in need of cash now, or if you did have to take out a mortgage, it may be beneficial to cut your losses as soon as possible.  You’ll have to ask yourself if the mortgage interest cost you’re paying will be outweighed by any changes that are likely to occur in the housing market.  If buying the property has put you in negative equity, ask your mortgage company if you can pay off the shortfall in loan installments, after you’ve sold the property.  The money you earn will also allow you to invest in a less risky property and get you back on the ladder.

People are resistant to sell incomplete projects as they feel it’s an admission that they were wrong.  The demands of the market are out of your hands, though, and it’s more important to look to the long-term and consider how this could affect your investment funds in the future.

Tom
 

Arnel Ariate is the webmaster of Money Soldiers.

Click Here to Leave a Comment Below 2 comments
Nick | Millionaires Giving Money - October 1, 2014

Property redevelopment is a great way of making money only IF you know what you are doing. I have been burnt a few times but once I educate myself I did recoup my losses and now make a profit on all my properties. My advice would be not to jump in but instead educate yourself in real estate and property development. nice post, thanks for sharing.

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    Arnel Ariate - October 2, 2014

    Very insightful, Nick – as always. 🙂

    Reply

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