Property investment is one of the safest ways of locating your funds, as the prices of properties do not change as rapidly as the prices of many other goods – still, you need to remeber that it is not absolutely risk-free, hence you need to learn how to manage it properly.
The fear of the unknown
‘Risk’ is a type of word that scares every investor with no experience. The uncertainty, which often derives from the lack of knowledge or experience, creates the discouraging myths around property investments. This is totally unnecessary, as every investment (being it a flat or a building plot, but also the stock market, the currency exchange and literally any other kind of business) carries some risks within. What is important is to perceive the risk as an opportunity and not a threat. With time, risk may even become an investor’s best friend – an this is why risk management is the prime ability of every player on the property market.It is the risk that makes you able to act and make money out of your investment. Thanks to proper analysis you can eliminate or mitigate certain elements of risk before they even arise. This ability will help you enjoy the returns of investments that others will not even see.
Own the risk
Risk assesment is one of the most importants phases of property investment, just after profit assesment. Once you asses the risk, you are ready for the next step. Before you make this step, you need to be sure you know what to do next, you know how to mitigate the risk and you are ready for the consequences. You must always remember that even the most profitable investment may end up in loosing some or all of the money you have invested.
Four steps of risk management
An investor should be capable of risk management, which includes risk indentification, measurement, assesment and threats mitigation/elimination. What does it actually mean?
Risk identification should be performed at the beginning of the investment project – the more time you spend on it, the more peace you are about to enjoy once the investment has started.
The next step is risk measurement. By enlisting possible threats and assesing their probability we make our further decisions much easier. Next, it is good to asses the cost of every potential scenario – this is how you measure the cost of investment risk. Thanks to these calculations you will know the cost of different areas of risk and how it can potentially affect the entire investment.
Every little aspect of investment risk should be taken under careful consideration, together with a list of potential solutions and their estimated costs. The more options you consider, the easier it will be to choose the best one in case of need. Wise analysis will help you mitigate or even eliminate the dangers linked to your investment.
After some time, once you invest more and gain more experience, it will be easier and easier for you to identify potential threats and learn how to deal with them. Every step of the way it is good to consult with more experienced investors – do not be afraid to open up and ask questions. Another valuable source of information are books by famous investors. From my book ‘Let’s make money on property investment’ you will learn what can go wrong with your investments, what is investment portfolio risk management and how to check whether your portfolio is market risk-prone.