It is a solid performer with a long track record, and therefore, it is relatively risky.
However, it’s important to realize that there are risks.
This is because every investment opportunity comes with some risk.
To maximize your results, you must manage these risks. Daisy is a property management company in New York that offers instant response times , and is a fantastic method of combining both. Apps for board and resident members keep everyone in touch and up-to-date.
Let’s now take a look to three risk management strategies that property investors can use so you know how to do it.
Interest rate risk
The Reserve Bank has been gradually lowering interest rates, and will likely do so again in the new year.
It doesn’t look like rates will rise anytime soon, as the inflation rate is still below the Reserve’s target range of two to three percentage points. Strategic property investment requires a risk management strategy, such as a cash buffer and a line credit to access additional cash in case interest rates rise.
You could also consider locking in a portion of your loan at fixed interest rates to reduce risk.
The economy must pick up before the RBA raises its interest rates. Inflation will need to rise, house prices and rent will increase over time.
Market risk refers to the possibility of the property market collapsing.
You know what? Just like all the property pessimists.
Although there are many people who predict such an event, it is unlikely that the capital city’s property market will crash.
Even Sydney, which is now taking a break from the boom of the last few years, will not “crash” anytime soon.
While its prices may be slightly lower, its high population growth – driven partly by large infrastructure spending and all the new jobs created by the buoyant economic recovery – will continue to drive demand for real estate. This will ensure that there is no major price correction.
It is important to recall how property prices in New York held up during the GFC, even though unemployment was on the rise and panicked the rest of the world.
To mitigate market risk, you should only invest in investment-grade properties with a track record of outperforming the averages. These properties will continue to be highly sought after by wealthy owners who drive up their prices.
Liquidity is the ability to sell an asset at any time. It could be due to your changing financial situation or because you realize that the asset is not performing well and need to be sold.
The current oversupply in new unit stock in major capital cities is a good example of liquidity risk.
Investors who wish to sell this type of property have discovered that there is less demand and that it’s difficult to find someone willing to buy their property.
These types of properties are not part of the risk management strategy that will allow liquidity to be managed.
Do not buy investment-grade property in areas that lack sufficient market depth. This means there should be a large number of buyers and enough properties to ensure there is a liquid market.