Property investment is risky.
But the risk isn’t what you think.
It’s not what most investors consider when they get involved in property investing.
What most people think about risk is wrong, and what most people are being taught about risk is wrong.
I’m going to share with you some ideas that will make you a better, safer investor when you understand where the risk really lies.
Then I’m going to have a chat with Pete Wargent about three important considerations that will be affecting the value of property over the next decade – some things you may not have thought about.
In my mindset moment, I’m going to share a lesson that I learned from one of my mentors that changed my life.
Here’s where the real risk is in property investing
Primary factors that determine the degree of risk associated with investment:
- Expertise – Your experience and network of contacts can be your biggest advantage or your biggest risk factor.
- Control – The more control you have over your investment, the lower your risk.
- Transparency – The more you know, the lower your risk.
- Liquidity – The greater the degree of liquidity, the lower your risk.
- Returns – You should be able to get returns from your property in multiple ways: cash flow, capital returns, appreciation, and tax benefits. The more secure your returns, the lower the risk.
- Is Your Principal At Risk? – An initial cash investment (your principal) in a bank term deposit is considered very secure, whereas if you buy shares it’s possible for the company to fail and the shares to be worthless.
- Personal Liability – The more you are personally liable, the higher the risk to the investment.
- Market Risk – Consider what impact general economic changes to that marketplace could have on your investment.
- Risk Spectrum – Is it the right property, in the right suburb, at the right price and at the right time in the cycle? When assessing risk, most investors only look at the last two factors – the market and specific investment risk. They rarely focus on the other factors, which in many ways are more significant.
3 important considerations for property in the next decade
In my chat with Pete Wargent we discuss:
The cost of land – Not all land is created equal, and you want to own the kind of land that is more valuable.
The cost of construction – Building costs increase because you need to use today’s materials, prices, and keep up with the costs of labor.
The cost of money – The cost of money isn’t going to get much cheaper over the next decade or two. You want to make sure that you make a return that beats inflation.
Links and Resources:
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Some of our favourite quotes from the show:
“You, the investor, are the biggest risk, the biggest variable of all.” – Michael Yardney
“The first major lesson in life is to learn how to handle the winters.” –Michael Yardney
“The bottom line is, if you can change yourself, you can change your life.” –Michael Yardney
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