Nothing comes with a 100% guarantee of success – but property is far less volatile investment than most.
You’ve probably heard the phrase ‘speculate to accumulate’. In other words, you need to take some risks to achieve the rewards.
But how risky is investing in property in Australia?
At OpenCorp, we hear a lot about people’s fear of risk, so we thought we’d get some expert opinion: OpenCorp Group CEO Matt Lewison has got 25 years of experience in property investing – and seen many different financial climates.
“First of all, anybody who believes there’s no risk in property is kidding themselves,” he says.
“But there’s risk in almost anything money-related – there’s even risk in putting your money in a bank, as we’ve seen in the US from time to time.”
So it’s a question of knowing what risk exists, how you can mitigate that – and being smart about how you minimise risk.
If you’re going with the right people such as OpenCorp, you’ll get all the sound advice you need to ensure risks are 100 percent mitigated.
Understanding Risks in Property Investment
Let’s consider what risks are associated with a property investment.
First up, there’s direct risk, which means if you invest in a residential property, the building itself could have defects or maintenance issues. It could be the way the building was built, or the materials used – and there are things you may not see, such as tree roots that can crack underground pipes.
Then there are financial risks associated directly with that property as well: can you get a tenant? Does the tenant cover the rent?
And there are more indirect risks, which aren’t necessarily related directly to your property.
These might relate to the broader economy, and whether it’s in a period of boom or bust (or just somewhere in between).
You’ll need to consider your own personal financial circumstances – what if something happens that affects your ability to maintain mortgage repayments? You could lose your job, or for people who have their own business – what if you get sued?
But what we need to remember is those same risks can apply to almost any investment.
At OpenCorp, we help clients to develop a sound investment strategy, which they are comfortable with. This puts them in a position where they can use their equity to springboard into the next property, which is the key to achieving compound growth.
Some of our thinking about financial risk is about perception; the bigger the investment, the riskier it is – at least that’s the perception. Trouble is, it’s not actually true – just because something’s expensive, doesn’t make it inherently risky.
Matt gives an example of how perception can be very different from reality.
He says: “There’s an economist from ‘Freakonomics’ [book / podcast] who years ago did some analysis on why people are afraid of certain things. Post-9/11 a lot of people got scared of flying and as a result more people were on the roads – then the road toll went up.
“I can understand why people would think that because they’re investing half a million dollars in an asset, that it might be more risky than investing $50,000 in an asset. But you could put $50,000 in crypto and lose half of it overnight.”
Property’s Unique Market Predictability
The key thing to remember with property is not so much the size of the investment, but the predictability of the market.
Property doesn’t have that same volatility as many other investments, and to return to how we started this story: speculate to accumulate.
What we’re all after is the maximum return for the minimum risk, but there’s an old adage that the higher the risk, the higher the return.
And that, in a nutshell is property investing. A solid investment in a newly built home in a capital city, with good infrastructure and amenities that is sought after by families, will give you a solid if unspectacular return.
The rewards really come once you start to build a portfolio (with the help of a property investment advisor such as OpenCorp) using your equity from one property to acquire the others. But you can keep that risk at manageable levels.
There’s one final aspect of risk to consider: the flip side of the coin. Have you considered the risk of not doing anything, and being left behind financially?