As a new property investor in Australia, adopting effective risk management strategies to help protect your investments and potentially maximise returns is crucial. Below, we’ve provided you with a comprehensive guide on different risk management strategies to assist you in making your real estate investments fruitful.
Diversification across real estate investments
Diversification is best likened to the proverb ‘not putting all your eggs in one basket’. In terms of investment, diversification is important on many levels. For example, you may wish to diversify across many different types of asset classes, such as shares/stocks, cash, fixed interest or property. Secondly, within a property portfolio, diversification may look like purchasing different types of properties (for example, units, residential homes or commercial properties).
Most investors consider two main types of property investment in Australia, commercial and residential property. However, with the introduction of the National Disability Insurance Scheme came another kind of property: Specialist Disability Accommodation (SDA). SDA homes are purpose-built dwellings that conform to one of the four approved design categories under the NDIS to provide the necessary support and provision for people with disability.
SDA properties are unique in that they have government-backed funding through the SDA scheme and are multi-income properties, often resulting in high-income yield for their owners.
Market research on your investment property options
One of the ways to reduce education risk is to conduct thorough market research. This provides you with the opportunity to understand current and future trends in the property market. Many property investors consider factors such as population growth, employment rates, infrastructure developments, and rental demand. Informed choices on where to invest may provide you with better insight and confidence to make investment decisions that help fulfil your objectives and investment strategy.
Financial analysis & risk assessments
Understandably, when seeking a financial return, performing a comprehensive financial analysis of each potential investment property only makes sense. You may wish to engage a financial professional such as a financial planner or accountant and the assistance of real estate investment professionals to help ‘run the numbers’ to understand the property’s potential financial risk. Areas such as the property’s cash flow, potential rental income and operating expenses can all help determine the potential overall return on investment.
When assessing the above, information may present itself to you that provides insight into the risks associated with each property and the overall market, such as market risk, liquidity risk, interest rate risk and environmental risk (such as natural disasters).
Risk mitigation via insurance cover
When you own an investment property, one of the best ways to help mitigate risks is to hold sufficient insurance cover. Each insurance policy may differ in its coverage, however, property owners commonly seek landlord’s insurance to help cover the cost of property damage as well as for losses associated with loss of rent, public liability and legal expenses. An expert risk assessment is worth considering.
Managing risk in property investment
Developing a risk management strategy is best done with the expert guidance of a qualified financial practitioner who can help you diligently implement risk management processes. Whether it’s real estate investing or any other form of investment, developing a risk management strategy can be hugely beneficial to help uncover whether risk avoidance, risk reduction or risk acceptance is required.
There are inherent risk factors that come with any form of investment, and property investing is no exception. However, risk identification and prudent risk management can help reduce your risk exposure and increase your chances of creating a profitable property portfolio.
To create a potentially profitable and purposeful portfolio, reach out to the team at Apollo Investment to learn more about investing in Specialist Disability Accommodation housing.