10 Tips For Reducing The Risks Of Investing In Property
Property investment can be very rewarding and profitable but it can involve many risks too. Here we will look at some ways to reduce the risks and limit the downsides of buying UK property deals.
Article Updated: August 2025
Contents
- Have a Business Plan
- Know Your Market – Do Your Research
- Take Expert Advice
- Go for Income (and Cash Flow) Rather Than Growth
- Buy Property Below Market Value
- Invest in Property Through a Limited Company
- Diversify your Property Investments
- Have a Contingency Fund
- Vet Prospective Tenants Carefully
- Have an Exit Strategy
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by Robert Jones, Founder of Property Investments UK
With two decades in UK property, Rob has been investing in buy-to-let since 2005, and uses property data to develop tools for property market analysis.
What are the Risks of Investing in Property?
There is a common theory that real estate doubles every 7 years. However, it is just that, a theory. There are other thoughts that there is an 18 year property cycle of boom and bust and house prices over time edge up but go through cycles.
Yet if you remember the property crash of 2008 you will remember that house prices do not always go up and if you buy at the wrong time of the cycle, price reductions of 20-30% can and do happen.
Property investment, like any form of investing, involves risks at several levels. Buy and sell at the wrong time, and you might not make any money. In a worst-case scenario, you might lose more than the money you originally put into your investment, regardless of your rental or development strategy.
Here are some of the specific risks you can face when investing in property:
- Property prices might fall
- Rents might fall
- Yields might fall
- Interest rates on borrowed money might rise
- Taxes on property or investments might rise
- Laws may change, making property investment less favourable
- You may incur unexpected costs, such as repairs or maintenance
- You may become involved in legal disputes
- You might not be able to find a suitable tenant
- Tenants might fail to pay their rent
- You might not be able to sell your property when you want or need to, as property is a fairly illiquid asset and market sentiment matters a great deal.
Ways to Reduce Risk in Property Investment
The good news is that there are many ways to reduce these risks, and some approaches include avoiding the specific asset or strategy (and therefore the risk) in the first place.
1. Have a Business Plan
Property investing over the long term shouldn't be speculative and it should be seen as a business. Like any business, having a buy-to-let business plan that maps out your finances, strategy and tactics is important.
Key things a property investing business plan should include are:
- Your long-term and short-term goals and how you plan to get there?
- What you can offer to a property project?
- What skills do you need to source from others?
- What is your budget?
- How are you going to finance your business?
- What type of projects will you pursue, eg. buy to let, refurbishment or development etc?
- What is your timescale?
- What is your exit strategy?
Understanding each of these goals and the different property investment strategies will help you choose the approach that best matches your risk tolerance and long term vision.
2. Know Your Market – Do Your Research
Investing in the ups and downs of the property cycle can mean it takes time for you to see a result.
So be patient and get to know the local market you are planning to invest in, do research and don't rush in on the first area or property you see.
There are 28 million residential properties in the UK, so there will be one that is right for you, so don't rush.
Aim to understand prices, rents and yields. Aim to understand supply and demand. Read market reports, market news and expert opinion and use data to build up a picture of the market.
There are lots of free datasets that can you insights on historic growth, demand, rental yields and even population for any major city and town in the UK, so make use of these and compare locations to see which area ticks all your property investment criteria. Understanding property possession statistics can also help assess market stability and identify potential risks.
A couple of the main location guides are
3. Take Expert Advice
Real estate investing as a source of growing assets and generating income has been around for years. There are plenty of investors, developers and landlords that have come before you and are open and honest about their experiences.
With the wealth of resources, websites and content on audiobooks, podcasts and YouTube channels, it's easy to get access to expert insights. Take each insight on its own merit and don't copy step by step, but reflect on the advice and see if it aligns with your own goals.
By taking in a range of sources, views and advice, you should be able to reduce your exposure to risk and side-step the most common property investment scams and mistakes.
Not even considering the strategies like buy-to-lets, student lets or holiday lets, there are many different subparts to property investing that is setup to get support from experts including:
- Mortgage brokers can provide advice on securing specialist bridging finance or generally on raising property finance.
- Accountants can provide support on setting up limited companies for property investors to structure their purchase correctly and potentially reduce tax.
- Conveyancers can provide advice on the risks in a specific property purchase, any issues in a lease or anything that is flagged by local searches. Although it is possible to do it yourself if you are buying with cash, diy conveyancing is generally not recommended as it can easily increase. your risk. Professional conveyancers rely on accurate property systems like land registry, lease documents, unique street reference numbers to UPRNs ensure precise legal documentation and accuracy.
- Surveyors can provide advice on the building's condition, repairs and costs, with lots of options for a home survey from a simple valuation through to a structural survey to spot issues like subsidence.
- Estate and letting agents can provide advice on current market prices, rents and trends to help you get the best sale or right tenants.
4. Go for Income (and Cash Flow) Rather Than Growth
Most property investors invest with a focus on either for income or growth. Of course it would be great to get both equally, however, sometimes they can be opposed.
Take for example, one of the cheapest places to buy a house in England, like Sunderland, the prices of the property could be under £100k and the rental yields 8-9% gross. This sounds great. But these areas don't have historic growth, and the likelihood of significant future growth may be limited if the population is static.
5. Buy Property Below Market Value
A common phrase in property is
You make your money when you buy
This essentially means, focus on buying right and not overpaying. If you can lock in a discount on your purchase and buy your property for less than it is worth on the open market, you can also reduce the risk of losing money if property prices do fall.
Buying at a discount can be difficult though, depending on market conditions. You need good negotiation skills and learn how to negotiate the house price with the agent AND you need to know what the true market value should be.
For example, take a below market value property in London, if the local price is £1 million pounds, then even a 5% discount is £50k. The bigger the discount, the more risk you can reduce.
6. Invest in Property Through a Limited Company
Tax planning is part of investing. Making sure you think ahead can help you retain more of your profits and make your future exit simpler. One way modern landlords choose to invest is by buying a house through a limited company.
This keeps the ownership, profits and tax and in a limited company wrapper and can mean when you exit you sell the shares of the company rather than the asset.
Each person's situation is different though, and speaking with a tax advisor is important before you make any purchase decisions.
7. Diversify your Property Investments
Like any other asset and investment strategy, considering diversification can help spread your risk.
For example, if all your properties are Houses of Multiple Occupation, if there is a law change in this strategy, it can significantly impact you. Likewise, if all your properties are on the same street or in the same postcode, and there is a local housing market crash, then all your assets will reduce in price at the same time.
8. Have a Contingency Fund
With every property project, allow an amount for unexpected contingencies.
For buy-to-lets you might wish to have one months rental income aside for maintenance costs and an additional one to two months for void periods. So at a minimum 3 months of annual rent income in your bank for just in case.
For a buy-refurbish-refinance strategy, you may have unexpected problems, delays or extra costs and its often considered around 10% - 15% of your anticipated project costs could be considered a useful contingency fund.
9. Vet Prospective Tenants Carefully
If you are investing in buy-to-let there is always a risk that any tenant will not pay the rent on time (or at all) and may damage the property, proving difficult to evict.
You can reduce these risks considerably by making sure you vet your letting agents carefully, to ensure you pick the right company to not only manage your property but also to find and vet the right tenants.
The basics of vetting tenants include asking for references and interviewing them before offering them a tenancy, but can also include requesting for a guarantor, a house visit of their current home or taking out tenant insurance to help cover the costs if anything does go wrong. Remember this is about reducing risks so anything you can do to get the best tenants and look after them long term will help go along way.
Joining membership groups like the National Landlords Association can also help guide you on the best practices of being a landlord and successfully providing homes for tenants.
10. Have an Exit Strategy
You can reduce risk in property investment by thinking about How, When and Why you will cash in on your investment, before you even get started. This should start at the very beginning planning stage, not many years after you have already purchased your first property.
For example:
- Will you exit your property investment when you have made a specific amount of money?
- or when you reach a certain age/plan to retire?
- Alternatively, if property prices or rental yields fall will you have a ‘stop loss’ exit plan ie: selling at a certain minimum portfolio value or when yields or profits fall to a certain point?
Consider this carefully and make a plan A and B. Things change and you might get in to property for a long time horizon of 20+ years, but what happens if your work, family or personal circumstances change, can you be flexible and change your exit plan if you need to? Planning ahead gives you the confidence to manage and navigate this and reduce your overall property investment risks.