Risk Management

With any kind of investment comes risks. If you don't have much money to start with, or you are investing with a one-off large sum that can't be replaced, you are quite normal if you are worried that it will all fall apart and you'll lose your money, or that you'll start doing something and run out of money before the end and will be trapped. This fear of something going wrong can stop some people in their tracks, even though they may be in an ideal position to better their financial situation.

So educate yourself before you do anything. Whether you are buying a house to live in, rent out, renovate or subdivide, research the area you are intending to buy in. Make sure what you are intending to do is a good idea. Don't buy a house to rent out if there is no rental demand. Don't buy a house to live in if there isn't access to the services you need (eg public transport, schools, a hospital). Don't buy a property to subdivide if there is no market for subdivided blocks.

How will you know? Research, research, research, especially in regional areas or places far from where you currently live that you aren't familiar with. Look at what kinds of property are for sale, what kinds have recently sold. How long were they on the market? Were there price reductions from the list price to actual sold price? Look at local businesses and other activity in the area. Are there empty commercial buildings - if there are, this is a bad sign. Are there new houses or commercial buildings being built? If there are not, stay away. Look at the state of houses in the area. Are they run down and neglected, or maintained with pride? Check things like the crime rate in the area, and drive around and see how much graffiti or vandalism is in the area. Check the census to find out what the median income is in the area. If it is under $20,000 you are looking at an area with very high welfare dependence.

The trick, of course, is to find the cheapest property you can in the best area you can afford. If this means you are buying a $50,000 property in extremely poor condition in an area a long way from where you want to live where houses in good repair sell for $110,000, there is nothing wrong with that. You can always start somewhere very cheap and work your way back to the area you really want to live. When you are working with smaller sums of money you are more likely to be able to get finance, will have less trouble with the repayments, and you will have more money spare to afford other things, like paint!

Research is the key every step of the way. If you are intending to renovate, make sure you have a very good idea of what the renovation will cost, and if you have the time and energy to finish the renovation. Make sure you have allowed this much money when buying a house to renovate - there is no point using all your available funds to buy a house that needs work and not leaving anything over to actually renovate it. If you are planning to subdivide or build, check the local council development plan carefully, just to be sure what you are wanting to do is possible. Talk to your local town planner or a local surveyor and ask for a breakdown of fees before you buy. Council fees can be extremely high for some kinds of development and you need to know in advance.

Risk mitigation is all about doing the research first to make sure you can afford what you are doing, and that you will get your money back plus a bit more at the end.

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Photo by Images of Money / Flickr