Is property investment risky?

All investments will carry some element of risk. That includes property. However, each asset class has different levels and types of risk. To decide if property investment is risky, we need to know what the different types of risk are.

Is property investment risky? It depends on what risk you’re referring to!

The three types of investment risk

There are three main risks that apply to all investments and asset classes.

Volatility Risk

Volatility is usually what most people refer to when they talk about investment risk.

This is the risk that values can go down, as well as up. Usually over a short period of time.

The stock market is a great example of high volatility. Prices change continuously in real time, often multiple times per day. When a major negative news event happens, prices can change a lot very suddenly. The first coronavirus lockdown in 2020 in a perfect example. This means the level of volatility is high.

Index funds in major global indexes like the S&P500 have a history of strong long-term growth. In that sense, you could consider them a safe investment. However, they are given a high level of risk for this reason – prices are volatile in the short term.

By contrast, volatility risk is low with property investment. Transactions take a long time to process, usually several months at least. Valuations change slowly over time. Prices aren’t revalued frequently, only when somebody comes to sell.

Is property investment risky? Not in terms of volatility.

Risk of Permanent Loss

This could be because you sell while prices are low or because the value falls to zero.

Most investments will have times where they go down in value temporarily. However, most usually go back up again, so you don’t lose money unless you sell at a loss.

Human behaviour often costs people in the stock market. They panic when prices begin to fall and then sell, which crystallises a loss. Only to then see prices rise again later! Data shows that the most successful stock market investors don’t look at their portfolio for this reason.

Property by comparison takes months to transact, so it’s hard to panic-sell. This prevents investors from making bad decisions that inflict loss.

The key with property is to ensure a safe level of positive cashflow. Even if market values dip, you then aren’t forced to sell at a loss because you’re making a monthly profit. You can simply wait for the market to recover. Where people have lost money on property historically, it’s because they overstretched themselves.

Some assets may see their value fall permanently to zero if demand disappears. Crypto or NFT’s are examples of assets with no fundamental value. If people lose confidence that somebody else will pay more in future, they have no tangible use, so they can become worthless.

Property isn’t just an asset class, it is people’s homes, so it always has tangible value. People will always need somewhere to live, so its value can never fall permanently to zero.

Is property investment risky? Not in terms of permanent loss if you can avoid being a forced seller in the short term.

Inflation Risk

One of the biggest risks to your money and your wealth is inflation. As prices rise, you can’t afford to buy as much with your money. Inflation erodes your spending power, so you need an investment that at least keeps up with inflation. Ideally, you want to beat inflation to make a real return.

Many people consider holding cash to be one of the safest investments. However, if the interest you receive is lower than inflation, you are guaranteed to lose money. In real terms versus inflation, cash is often one of the riskiest investments.

Property prices have historically risen just above the rate of inflation. When combined with leverage, those returns are multiplied. The mortgage debt is then simultaneously eroded by inflation in real terms. The combined effect of mortgage leverage and inflation is a huge reason for outsized returns from property. Rents generally rise in line with inflation over the long term, so your income keeps up with inflation too.

Is property investment risky? Certainly not in terms of inflation. In fact, it benefits from it.

Property specific risks

Compared to other asset classes, on the above metrics, property is a low-risk investment overall. However, it does have some specific risks to be aware of.

Tenants

The number one factor to make or break your investment will be your tenants. It’s one of the biggest variables of property investment. There will always be the risk that a tenant may fall into rent arrears or stop paying altogether. Or the risk that they may damage the property. However, this can all be mitigated.

It starts with finding the right property. A cheap property in a cheap location might look attractive with a high yield on paper. But it will be cheap for a reason so don’t expect to be renting to professionals. The tenant profile will naturally be riskier. Finding a good property in a desirable location with good fundamentals will attract better tenants. It will also reduce the risk of void periods.

For help to find the ideal property, consider using our sourcing service.

If you have a good property, you should attract good tenants. But you’ll still attract bad ones too. So be very selective over who you rent to. Conduct thorough referencing. Demand their last 6-12 months bank statements to review spending habits. Meet them in person. If you get a bad feeling, trust your gut. A longer void period while you find the right tenant is less costly than getting a bad tenant quickly.

Keep in mind that insurance products are also available to protect against most tenant related risks.

Location

One of the main factors that will determine the performance of your investment is the location. The risk that your investment area performs badly is a significant one. Many people only invest locally, but it’s highly unlikely that you will live in the best possible investment location.

Look for areas with strong demand fundamentals. Plenty of local amenities, good transport links, and access to employment. Think about what your target tenant profile would want.

Also consider relative affordability. If it’s too cheap, it’s probably cheap for a reason. If it’s too expensive, it probably doesn’t have much room for growth.

Finally, look for areas with good desirability and further investment or regeneration plans. Anything that is likely to improve the location in future will create more demand and more growth potential.

Strategy

There may also be risks related to your specific chosen strategy.

A refurb strategy carries extra risk in the refurbishment itself. More work may end up being required than initially expected. Material costs may be higher than expected. Contractors might let you down. The job could take longer than expected and labour costs may be higher. The schedule may overrun, leading to higher financing and holding costs.

If your strategy is then to refinance after refurb, there’s a risk your planned valuation may not be achieved. This leaves more capital tied up in the deal.

If your strategy is to flip, there’s always a risk with the exit. The planned sale price may not be achieved, especially if market conditions change. The sale may take longer than expected, leading to higher finance and holding costs.

HMO’s and SA’s have risks with higher regulation, legislation, and management requirements.

The lowest risk strategy will be a standard Buy to Let. It might not sound as exciting, but there are fewer variables and less to go wrong.

Possibly the biggest risk of all is choosing the wrong strategy for your circumstances. All strategies can work for the right person. But they won’t all work for everyone. Many people cost themselves time and money by picking a strategy that isn’t compatible with their goal.

Is property investment risky? It certainly is if you choose the wrong strategy for your circumstances and goals.

Liquidity

Keep in mind that property takes a long time to sell. That means you won’t be able to access your capital quickly. A typical sale might take 4-6 months, sometimes longer depending on the market. It can be possible to sell quicker, but you may need to reduce the price. Even then, it won’t be quick.

That is why property should always be treated as a long-term investment.

Always ensure that you have a cash contingency, and ideally, plan to hold property for multiple decades.

Interest Rates

The greatest advantage of property investment is the ability to easily leverage with mortgages. However, this can introduce risk if interest rates change.

Always ensure that you have a safe level of positive cashflow on day one. Using a 5-year fixed mortgage product guarantees your costs for this period. Over that timeframe, rents will almost certainly rise, so you’ll have some protection if rates rise.

Mortgage lenders also conduct their own stress tests to ensure affordability.

Keep in mind that pre-2022 when interest rates were super low, the risk of rates increasing was high. However, with rates now at more typical long-term levels in 2025, that’s less of a risk. Remember that higher interest rates are not good for governments who carry large levels of debt. That means they are unlikely to increase significantly.

The best way to mitigate risk here is to work with a quality mortgage broker. Don’t just go with a generalist who does mostly homebuyer mortgages with a bit of BTL on the side. Or a fee-free broker just to save on upfront costs. Work with an experienced broker specialising in mortgages for investment purposes. They won’t just find you the cheapest rate now but help to plan for long term risk too. A strong relationship with a top broker should save you more money than they cost in the long run.

We work closely with Framework Mortgaging and strongly recommend their services for the best overall experience and results.

Maintenance

Properties require ongoing maintenance, and unexpected costs will eat into your profits. Since these can be hard to predict, always carry a cash contingency.

The risk of maintenance costs will be higher on some properties than others. New or modern properties are far less likely to incur significant maintenance costs. Older properties will naturally require much more maintenance. Factor this into your buying decisions.

Proactive maintenance is also a good way to reduce major costs. Identifying and fixing small issues regularly will often prevent larger more costly issues from arising.

Conclusion

So, is property investment risky? Everyone has different tolerances to risk, so I hope this article helps you to decide for yourself.

Overall, property is a very safe asset class when measured against the major investment risks. It’s low in volatility, permanent loss is unlikely, and it benefits from inflation.

We’ve all heard people using the saying: “safe as houses”. This idiom comes from the general idea that property is a secure and reliable asset to own.

There are some risks specific to property as outlined above. Most risks can be protected against, mitigated, or removed completely if you know what you’re doing.

The key to investing safely is knowledge and experience. Working with an experienced mentor is the best way to alleviate risk and ensure success. It doesn’t matter how much research you do; there’s no substitute for experience. You often don’t know what you don’t know until it’s too late.

Consider working with Fintentional to guide you on your property investment journey. We help you to make better well-informed decisions and avoid common mistakes. You can book a free call with us here.