Are there any risks with buy-to-let properties?

We answer these and many other questions in our video blog episodes.

Here is the transcript of episode 26 to read:

The fundamental question is: Is there a risk in investing in real estate?

First of all, I would like to emphasise that, in my opinion, there is no investment in the world that is completely free of risk. But I always ask myself: where does the greater risk lie – buying a property or not buying one? I find it far riskier to try to get through life without passive income. Because if you try to build wealth just by saving on your own and nobody else is paying for you, that is much harder than if you get some help along the way.

What risks could arise? Sooner or later, a repair will probably be needed in the flat. Maybe something will break after ten or twelve years. Let's assume as an example that you rent out a flat including a fitted kitchen. It is almost certain that after 14 or 16 years the fridge or the cooker will pack up. Then the management company will have a new cooker or fridge installed. What does a fridge cost? Around €400 to €500. The management company sends you an invoice for €500. You can deduct this amount in full from your tax and perhaps only pay a net amount of €250, €280 or €300 for a new fridge including installation.

When something like that happens to you, I always wonder how much rent your tenant has already paid over the past 14 years. Assuming your tenant pays €800 a month, that's €9,600 a year. In ten years that would be €96,000 and in 14 years around €120,000 to €130,000 in rental income. When I then receive an invoice for a fridge, for which I only pay €300 to €400 after tax, the question arises for me: blimey, you've collected €140,000 in rent over the last 14 years. Now you're investing €250, €300 or €400 – that is something I can easily live with.

If you then say that this is an incalculable risk, steer clear of property. But realistically, between the two of us, I think: you're better off getting involved in property, taking this small risk that the property might in the end—if it costs €400,000 and you plan to pay €80,000 for it over the entire period—maybe over the 30 years you get an extra bill two, three or four times and in the end you don't pay €80,000, but €83,000.

I can tell you, even in this case it will be one of the best investments of your life. But fundamentally I can only say: there is no investment without a small, minimal residual risk.

Keywords:
Risk, investment, real estate, wealth, passive income, repair, rental income