Residential property investing has become increasingly popular in recent years as people have lost faith in stock markets and have looked for what they think is a safer place to save for their retirements. In Britain, where it is known as buy to let investing, almost a tenth of all properties being bought in 2007 were bought by property investors. Yet buy to let investment also carries a wide range of risks so investors should take care to study the market carefully before buying a property. The biggest risk is of property market falls. This is the case in America and Britain, where the housing market has fallen by almost a quarter from its peak. The fall in house prices slashed returns earned by property investors in 2007 and 2008, though they have improved since.
Many commentators worry that housing prices in Britain are still seriously overvalued that they are due for a fall. The recent decline, sharp although it has been, has still left prices above their long term averages when measured as a ratio against income or rentals. Rental yields are also not particularly attractive so prospective investors should be sure to look for undervalued properties or sectors. London prices, for instance, have not fallen nearly as much as in other regions.
Residential property investors also have to be aware that they are investing in a asset that can be damaged or destroyed by tenants or natural causes. Flood damage or even vandalism could wipe out an investor if they are not adequately protected. This makes insurance essential. Fortunately there are a variety of cheap landlord insurance policies available that will pay out for accidental damage. Some policies will also cover deliberate damage. This is useful to avoid being caught out if an angry tenant destroys windows or other parts of the house.