Why Take The Risk?

Why Take The Risk?

People may ask “Why take the risk?” investing in property.  For every investor, the answer will be different. It all comes down to personality, goals and capacity. There are those people who will never invest in property.  They are quite happy and comfortable working their nine to five and living within their means.  They see no need to take risks to change their current situation.  In the middle are the fence sitters.  The ones who like the idea of investing but never actually invest.  This could be due to being risk averse, lack of knowledge around the investing process or not having the means to get started.  Experienced and successful property investors are those that want to improve their lifestyle and can see that calculated risk equals reward.

Successfully investing in property involves calculating risk.  It means being very clear in knowing that some investments will perform better than others but that, on average, you will come out better than where you started.  To do this, you need to clearly understand your current situation, what your future goals are and then devise a plan to get there.  Involving your account, financial planner and/or receiving legal advice is all part of reducing any risks.

Understanding your current situation means having a very clear overview of both your finances and current lifestyle.  Know your saving and spending habits, how much you earn and how much disposable income you have.  This is not the time to have your blinkers on!  If you absolutely must have that $6 cup of coffee every morning, then you need to take that into account with your budget.  You also need to know what your capacity is in terms of how much you can initially invest and how long you can hold this level of investment.  This means calculating what interest payments (if any) and all associated costs (rates, land tax, property management etc.) you will need to make during the lifetime of the investment.  Then, add another 12 months of holding costs and a hefty interest rate rise as, in this game, buffers can be the difference between a successful investment or having to cut and run at a loss!

Once you know that you have the means to invest, you need to be very clear about why you are investing.  Are you looking for a short term real estate flip for cashflow to improve your current lifestyle or are you looking for longer term capital gains and a legacy portfolio for future generations?  Sometimes, it’s a combination of both.  Knowing why you want to invest will drive the where and how.

To paraphrase property investor Dolf De Roos … ‘the opportunity of a lifetime comes along once a week’.  Once you have determined why you want to invest and your capacity to invest, then you can start looking for the opportunities that match both of these factors.  At this point, you are hunting for unicorns and this takes time!  Rushing in without doing your market research could leave you in a position of buyers remorse when a better opportunity comes along shortly after.  Part of mitigating risk is becoming more knowledgeable.  If you see an attractive opportunity ask yourself “Why take this risk?”.  Carefully examine whether it does actually fall within that narrow intersection of goals and capacity.  If it doesn’t fit, move on and keep looking!

Back to the initial question of “Why take the risk?” investing in property.  Every investor will have their own answer depending on their own unique situation.  What all answers will have in common is that the investor saw property investment as a means to improve their current and future lifestyles … and every now and then, don’t you wish you had purchased that property 20 years ago or held onto the first house you purchased?  It will always be the case that, in the long run, property values will always go up due to rising inflation and costs.