Investment Risk
You as investor should fully understand and analyze all the risk that is involved in the type of investment you choose. Always remember that the higher the risk you take the higher returns you could receive but at the same time there are more chances of you taking a loss. There is a low risk investments e.g. bank deposits and a high risk investment e.g. shares. There are two types of risks in investments
Volatility - the possibility of an investment to fluctuate in value is known as volatility. A higher volatility means that a security can change dramatically over a short period of time (either goes up or down). A lower volatility means that a security’s value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.
Property Investment Risk
Mortgage rates Increase :
If the interest rates goes up, your repayments will increase. This will
hit you in the pocket as you will have less returns for your
investment. Can you afford to pay extra if this happens ?. Always have
some sort of backup just in case and make sure you are prepared to
increase your repayments if need be.
Insurance premiums :
The insurance premiums for your investment property could go up and you
will have pay extra for your premiums. Always have some money set aside
for this just in case
Property market collapse :
Property market is not stable and it is continually changing, so be
prepared to take a hit if the market goes down. If you are buying to
resell make sure you are prepared to keep the property longer if the
property prices fall in the short term. If the property market collapse
then you will be paying the vender more than what your property is
worth. To avoid this make sure you spread your investment and have
backup just in case.
Selling during down time :
if for some reason you had to sell your property at a time when the
property value is low, you will be left still owing money to the lender
after you have sold your property.
No Rent : Finding the tenants for rental property can be a big hassle, also getting them to pay on time and keep the property neat and tidy will be a nightmare so when buying a property for rental investment make sure you to hire a property manager. They will make sure that the property is always rented and keep an eye on the tenants
