Property investment – How much risk are you willing to take?

Property is like any form of investment, where the greater the risk you take the more potential you have to make greater profit. Ultimately how much risk you take my depend on where the money you invest has come from, and to what degree of trouble you would be in if you were to lose it!

What time scale are you working on?

The time scale you are working on will affect the level of risk you may need to take to see a positive return. Where there are many safe investments that will make a nice return over a period of 5 to 10 years, there are very few that are risk free for a period shorter than 12 months. It is my opinion that property investment should be seen as a long term strategy for profit.

Spreading Risk

One way to reduce the risk involved in an investment is to spread that risk across several different projects. If you are lacking in capital, then one way to spread risk would be to invest with a partner, family or friends. Putting all your eggs in one basket is not the best strategy for every beginner. Raising the capital required to invest in property will be a key factor.

Capital

Capital is the money that you have to invest. Capital may come in the form of equity you have in other investments, or the property you live in. The amount of capital you have will turn into the deposit you have to place down on your new investment property after expenses.

Market cycles – How to avoid greater risk

The property market works in cycles, both locally, and as a whole. In times of recession people have less money to spend, more people need to sell their homes, and as a result properties sell for less. If you are a cashed up buyer with capital this is an ideal time to invest in property, and there are plenty of bargains to be found. However, it is also much harder to borrow cash during a time of recession, with banks feeling to pinch of lower interest rates, borrowers are often expected to find a much higher deposit.

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