Risk v reward: Should you dive into the world of property investing?

There are some people who love fast cars, high-adrenaline sports and investments that pay big – if they come off.

And there are others who prefer a quieter life of steady returns, security and a far less stressful life.

But for all investors in residential property, it’s vital that they understand their own risk profile before they make the leap, advises property investment expert Luke Harris, author of the new book Property Fit: Get your Property Portfolio in Shape for Financial Freedom.

“I hear many stories at the moment about people who’ve heard talk around the barbecue about Bitcoin and they invest without sometimes even knowing what it is,” he says.

“But the good thing about property is that everyone understands it.

“At the same time, you still need to know your appetite for, or aversion to, risk. If you’re 58, for example, you probably don’t want to buy a property and have to wait a long time for its value to grow; you might want to activate it through a renovation to help. But if you’re younger, you can take more of a risk, as you can hang onto it for longer.”

Trying accurately to assess your own situation is critical in working out how much risk you should be prepared to take, Harris suggests.

You might have a job that’s under threat, on a short-term contract or be in uncertain casual employment. You might have a very low level of savings that can’t provide a buffer if you hit trouble.

“So, you need to educate yourself to understand the risks associated with different residential investments, and learn not to be emotional about those decisions,” he says.

“It’s about having an informed position and moving ahead from that.”

Founder of Freedom Property Investors Scott Kuru agrees that people’s own perceptions of risk can be very different.

That’s not such a problem in terms of holding a property in today’s rock-bottom-interest-rate environment and a low vacancy rate in most areas.

“But that can still be location and property-dependent,” Kuru says.

“You’ll increase your risk of not having a tenant and being able to repay your mortgage if you’ve invested in a property no one likes in an area where no one wants to live.

“Buying the right property can then be the riskiest proposition. There are some areas where people are caught up in FOMO and are over-paying for property and they’re overlooking less popular areas where there might be a lot more growth potential. Those risks can be lessened, however, by doing your due diligence about properties and researching areas.”

Being tolerant to risk-taking can always be a function of age, income and profession, but it’s often tied just as much to a person’s psychology, believes Brighter Finance mortgage broker Marcus Roberts.

“Attitudes to risk and risk-management can come from your background,” he says.

“Some people have grown up in a very conservative fashion, while others are brought up to be much bigger risk-takers – and not having a backup plan doesn’t worry them.”