There are people who love fast cars, high-adrenaline sports, and investments that pay off – if they succeed.
And there are others who prefer a quieter life with stable returns, security, and a much less stressful life.
But for all residential real estate investors, it’s essential they understand their own risk profile before making the leap, advises real estate investment expert Luke Harris, author of the new book. Property Adjustment: Get your real estate portfolio in shape for financial freedom.
“I hear a lot of stories right now about people who have heard about the Bitcoin barbecue and are investing sometimes without even knowing what it is,” he says.
“But the good thing about real estate is that everyone understands it.
“At the same time, you should always know your appetite or risk aversion. If you’re 58, for example, you probably don’t want to buy a property and have to wait a long time for it to rise in value; you might want to activate it through a renovation to help you out. But if you are younger you can take more risk because you can hang on to it for longer.
Trying to accurately assess your own situation is key to determining the level of risk you should be prepared to take, suggests Harris.
You may have a threatened job, a short-term contract, or an uncertain casual job. You might have a very low savings level which cannot provide a buffer if you run into problems.
“So you have to educate yourself to understand the risks associated with different residential investments and learn not to be emotional about those decisions,” he says.
“It’s about having an informed position and moving forward. “
Freedom Property Investors founder Scott Kuru agrees that people’s perceptions of risk can be very different.
This is not a problem in terms of owning a property in the current environment of the lowest interest rates and low vacancy rates in most areas.
“But it can still depend on the location and the property,” Kuru explains.
“You will increase the risk of not having a tenant and being able to pay off your mortgage if you have invested in a property that no one likes in an area where no one wants to live.
“Buying the right property can then be the riskiest proposition. There are areas where people get caught up in FOMO and overpay for property and they overlook less popular areas where there could be a lot more potential for growth. However, these risks can be reduced by exercising due diligence regarding properties and research areas. “
Being tolerant of risk taking can always be a function of age, income and profession, but it is often just as tied to a person’s psychology, says Marcus Roberts, mortgage broker with Brighter Finance.
“Attitudes towards risk and risk management can come from your background,” he says.
“Some people have grown up very conservatively, while others are brought up to be much riskier – and they are not worried about not having a back-up plan.”