I have always insisted that investors should take risk management seriously. This is mainly because this simple process can make a huge difference to your next purchase. Plus it helps you to identify potential property spruikers.
It is a fact that property investment is all about risks and if you wait long enough, you can make some money. However, if you only buy nice and affordable properties, how can you accelerate your investment portfolio without knowing that after ten years, those investments will still be associated with high risks?
When we run risk management on a property, we can understand the risks that are associated with the property that is offered to you.
Rather than general risks such as war, or natural disaster, we offer a more calculated risk report focusing on the specific property and the particular location by taking into account critical aspects namely the surroundings, economic factors, prices and government policies.
The report shows a fair risk assessment that will reveal if the property you intend to invest in associates with low equity or any cash-flow risks.
Importance of Risk Management
When you are at low risk, you are more likely to make good returns in the short term. Although real estate is a long-term approach, you should be able to know the short-term equity or year by year returns. By having this information, you can be assured that in the long term of about 7 years and more, you are more likely to double or triple your returns.
How is the risk report any different to reports given by property investment companies? Most of the companies work on high commission. They engage a developer that can pay a large sum of money and work with third-party research companies to provide reports on the entire project.
The reports would highlight good attributes, but nothing specific about the property other than having a beautiful bench top, double glazing windows, high ceiling and a few comparable sales that support the price and the marketability.
This type of property is also often associated with high or extreme risk. High-risk properties mean it will be unlikely for the property to achieve any capital growth in the long term. The maximum you could possibly make is around 20% in the next 10 years – an insignificant value.
If the growth and performance of the property are inferior, you will not be able to continue and accelerate your investment portfolio.
Components Of A Risk Analysis Report
A proper risk analysis report validates the risk level in every suburb in Australia. It provides details on the price, the demand, the ratio between renters and owners, the properties in the pipeline in the next 24 months, economic factors, percentiles, preferred asset class, preferred property configuration and many more.
With this report, you can validate the information given by the sales consultant. If the information is accurate, you could go ahead with the deal. Otherwise, you can politely refuse to extend your commitment.
As buyers agent ourselves, we try to reduce the risk even more and achieve higher returns by checking on real-time property layout, property condition, position on the ground, back garden, land gradient, potential subdivision, assessment or contour line, off the market negotiation with vendor/agent to get an equity advantage and others.
Top Dos And Don’ts
- Do try to understand your budget and borrowing power as that will determine if you can serve the loan or the shortfall.
- Do your best to take independent advice and risk management for every property by running a customised risk report.
- Do not let your emotions and inspirational success stories with baseless facts get the best of you.
- Do not put 100% trust on information obtained from sales consultants or a general seminar.
If you are in need of further assistance or have questions about the article, please leave a comment or send an email to us.