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Archive for February, 2010

Protecting Against Renovation Property Risks

February 28, 2010

It’s all about risk assessment…

This is especially true when it comes to property investment. Property investment is guaranteed to deliver healthy long term profits for many people and hence makes it a very attractive proposition. However, it is an investment that should not be made lightly. People should be aware of the facts surrounding the property investment business. Property investment is more than just easy profit, as there is a decent potential of making bad investments

If you plan to invest in renovation property, you must take precautions that will limit your risk and exposure when you can. If you cannot reduce the risk, be prepared for financial loss and be mentally prepared to accept potentially life changing losses. In property investment there are several risks that you need to look out for, including:

Loss of investment

When you are dealing with property, it is possible that you may lose some or a lot of the investment that you make to purchase your property. If your investment is high in a renovation project but the demand is low for the end product, then you may be dealt a devastating blow if your property does not sell for at the price or the speed at which you expected. So researching the market to choose a property that is in the right area and in demand is critical. Also research the pricing levels of the properties in the area and what the end cost will be to renovate a property and how that is likely to affect any profit (or loss) when it comes to renovating and selling.

In addition, do the obvious and be aware of the market conditions within which you are planning to sell. Be aware of the potential of a non sale. If you strategy is to renovate, hold and rent the property then assess the rental potential of the market and make sure that you get a suitable return to keep you in the black against your outgoings and mortgage.

Also make sure you take out appropriate insurance cover during the renovation process to make sure that you are covered against unexpected occurrences.

Cover Your Risk

Remember that in property investment, there are sometimes unforeseen costs that you may not initially allow for. Here are some examples:

Natural Disasters - the economy collapses - the local market is crumbling - people change their minds when you are trying to sell - accidents or injury claims when someone is working on your property and so on

Anyone of these things can lead to real consequences and can end up being catastrophic. The above events are totally beyond your control. Therefore you must be prepared to account for such risk.

In addition to these risks, there is the risk of discovering unexpected flaws in the actual property. Most investors tend to abandon a good inspection and often end up discovering unwanted and sometimes costly problems. The repairs will cost money and these costs will eat into any potential profit on the horizon. So never buy with your “eyes closed”.

If you have found problems with your property, you generally have two options:

- Firstly, you can undertake the repair work yourself before putting the house on the market.

- Second, you can sell the property as is and reveal the problems to potential buyers.

To save the hassle, it is very important to locate these problems before buying the house. Make a careful inspection of the house and that way you will discover any potential costly faults that may adversely affect your property investment. This will not only save work but will also save a lot of money.

Keep in mind that you should not let the two risks to stop you from investing in this market. However, as an investor, you need to clearly identify these risks so that they are priced into the investment and assessed accordingly to make sure that the anything you buy is worth buying in the first place.

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