17 Sep High-Stakes Investing: How To Manage Risks on the Property Ladder
We often get asked what is the most secure investment to make is. And our answer often surprises people. Everyone expects us to say property. But this is far from the truth. The safest investment, we think, would be to simply invest in a sure thing company. Apple, Google, Coke. While you wouldn’t see much return unless you were investing big, they are never going to tank and leave you broke.
But real estate has been proven to be a potentially violate industry. So how did it get this reputation as being such a safe investment?
We spoke to some experts from pillar wealth management about the real estate market and why people seem to flock to it. Their research showed people have seemingly confused the idea of a safe investment with a good investment.
This is the key distinction. Buying a property is always a good investment. And a lot of high-end spenders like to buy property because it has a lot of risks attached to it. But we are going to break these risks down and also explain how you can better manage them. All in the interest of helping you climb your way up the property ladder.
The Location Risk
You will have heard the expression that everything in real estate is Location, Location, Location. And this is true. A property is only worth as much as the area it is located in. Buy a section of land surrounded by landfill sites, you can expect it to be cheap and sell for less. Buy a luxury condo by the beach in Hollywood, you stand to make a small fortune.
But the location risk isn’t as clear cut as that. There are a lot of mitigating factors to consider. The first being stability. This has a double meaning to it. You have to consider if the land you are buying is prone to earthquakes or if the ground is stable enough. Sinkholes are a major issue for construction projects and residential areas.
It is worth paying for a full geological assessment to be made of your land.
The second meaning is how stable the area around it is socially, economically, and politically. To check this you will need to tour the area. Speak to locals and business owners. Has there been an increase in crime? Are businesses making a profit? Are more chain companies moving in?
All of these factors will tell you if the area is going to be a good place to invest in. As the quality of life increases, so does the value of your property.
The Construction Risk
It is all too easy to run in guns blazing and put down a deposit on a new house or an empty plot of land. Maybe you are looking to nab a cheap property and fully refurbish it. This is one of the biggest killers of real estate dreams.
Firstly, if you are buying land, you need to make sure the land can be built on physically. This circles back to the stability issue. But you also need to obtain planning permission from the city or state government. This can be a long and exhausting process. So it can be wise to make sure you have permission in advance.
Secondly, you need to budget properly. Most construction projects or home refurbishments will go over in the spending. There are always unforeseen complications or issues that arise during work that will cause setbacks or push your budget to its limits.
If you don’t take all this into consideration, you could find yourself out of money very quickly. Having to stop a project midway through due to financial issues is heartbreaking. So make sure you are planning ahead.
You will also need to make sure you are hiring the right people. Contractors or construction firms are a necessary part of any real estate construction project. Hiring a dud team that will over-spend and under-perform is obviously not a good idea. So, do your research into what firm will work best for you.
The Renter Risk
One of the biggest headaches for anyone renting out property is nightmare tenants. We have all seen the stories online. Tennents making an unholy and disgusting mess. Tennants being violent or refusing to leave when the tenancy is up. Raucous parties and property damage constantly.
Of course, these cases are rarer than they are common. But it still stands you need to be prepared for it if you are a landlord. And you might be thinking there is no way to mitigate this risk. You would be wrong.
The first step to controlling Renter Risk is to establish a strong background check and interview process when finding tenants. You might think this is going to deter people from wanting to live in your property but that isn’t true. The extra control offered by these steps is often a great sign for potential renters. And these renters are often the ones you want to live there.
Anyone who is scared off by these checks is, most likely, not someone you want around.
You need to make sure all your contracts are ironclad and have a lot of provisions to protect yourself against paying out for unjust property damage or squatters. We would recommend hiring a team of professional lawyers to make sure everything is done properly and to great effect.