Risk in Property #PowerLesson

Risk in Property #PowerLesson


Hey, guys, Jason here. And I wanted to stop by for
another five-minute lesson. And today I want to change
things up a little bit. I want to talk in investing philosophy. Let’s talk about risk,
let’s talk about risk and what it means when
it comes to investing in property, investment property. And you need to understand
risk as a property investor because it’s something you will
never be able to eliminate. But if you understand risk, what’s normal, what’s abnormal in a marketplace, and really understand you’re
going to go through good times and not so good times and be
able to keep your strategy and your focus as a property
investor sharp, keen, and not lose momentum, risk
is going to be just a regular, normal party a day,
not a terrifying event, not a terrifying process that you’re not prepared for. So let’s talk about risk and what you need to get prepared for. Risk in a market place or
risk in property investing, there is a property cycle that we enter, and let’s talk about risk when
it comes to market cycles. Right in this space here, what I would call the risk downside, where a property may reduce in value and rents may go down, and values may go down, et cetera, in the short-term, in an
adjustment period of a cycle. And so, we got to to understand, with risk we’re going to go
through normal ups and downs in a market cycle so
there might be a down part but also we’re looking to invest and take advantage of
the up part of the cycle, the down and the up, alright? Oh, the down and the up. Now, guys, to be really honest with you, there’s no way to be
exposed only to the up and not go through the down. Now but let’s put in perspective
what the down might be because the upside,
long-term, is wonderful. We want our properties to double in value, the rents to go up, them to
provide us with some income. But if you can’t go through
or understand the downside or potential down times in
your property portfolio, you’ll give up, you’ll throw your toys, and you’ll say, oh, it doesn’t work. I did that once and my values adjusted. I did that once and I
had to drop my rent once. Just so you know, that’s
a very, very normal market condition that you
will face at some point. So you need to move past
that and understand really, what is the risk for you. Number one risk and nine times out of 10, in this section here,
it is an adjustment risk to your equity or your
available cash, okay? So, adjustments in
equity or available cash to invest happen on paper, okay? And they are usually, when
it comes to residential real estate in the good
quality market places, a temporary issue. What happens, let’s say,
in the last five years, Sydney has done something spectacular. Amazing, it’s gone up,
it’s doubled in value. Certainly, 100%, we should
expect an adjustment of that value for a period of time. Who knows how long that will be? Maybe two to five years,
maybe seven or eight. That won’t, the adjustment,
often in the past, normal has been about 10%. Normal, overshoot, undershoot, but if you purchased at the top and you go down, that’s when the risk becomes something a little bit more. The risk, number two, not
only to your equity and cash in this section but your
income and your rents. Sometimes in this section there is, you purchase maybe at the
top of a supply chain, you maybe purchased in a marketplace that old properties are losing their rent so new ones are gaining,
whatever happens there, there may be some risk
in that space there. Now there are very real economic risks that we need to plan for and as always, when we talk to you guys and coach, you plan using buffers, okay? Buffers, you need to make
sure you put aside some just in case there needs to be
adjustments in your cashflow and some bits and pieces, so
that can be very easily planned if you’ve got a good strategy. But let’s talk about number
three and number four. The risk in this space here
often one of the biggest risks that I see is an emotional risk. What do ya mean, Jason, emotional risk? An emotional risk that
you have an experience in this section, right? Experience which is negative and you give up on your investing, this one is the most
important to get right. You got to make sure you understand that ups and downs in this game is normal and you don’t lose your emotional capacity to deal with moving forward and keeping and sticking to your plan. The emotional risk is
larger and bigger in reality than these ones because
these ones recover. Often we have an emotional challenge in and around investing
and we fail to recover. The fourth one is a mental or mind. We lose faith in the strategy
or the technical ability of ourselves to continue to invest and manage our way forward. So understanding risk, guys, is not only, okay, am I a low-risk investor or a high-risk investor or whatever? Is there some real stuff at risk that I have to plan for using my buffers? But also these risks here,
the emotional and mental risk you face in a downside or a downtime, you need to be able to manage, know that they are
temporary, these downsides, when you have a look at any
property market in the past, in the decent cities, the
downsides have been small, compression, and then
later on they grow again. That’s normal in property,
that’s normal in any investing and if you don’t want any risk, don’t get involved in anything, really, don’t leave the house. So, guys, there, hopefully
that was a useful conversation. I just wanted to put in perspective what risk you can manage but
the really important ones we need to manage as property
investors along the way. And downsides are normal,
upsides are normal, you’ve got to be on the field
to be able to make a goal, kick the goal, create the
equity, get the income, get the outcome, so if
you need help with that, reach out, would love to help you. As always, let me know
in the comments below if you want another lesson
on something different and until I see you in person,
take care, bye for now.

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