Your risk profile and how it impacts property investment decisions

DID YOU KNOW though there are 6 types of property to consider when investing?  And within each type there are sub-types?

Most people immediately think “residential” property when they ask about buying an investment.   WHY?

This is what most people understand.  Mainly as most of us live in a residential property, and this after all has been the great Australian dream for decades.

Each type and sub-types have their pros and cons.  Which one serves you best depends on your investment and financial goals, personal situation, attitude to risk etc.

The least risky

As shown in the below graphic, Residential Property is considered the least risky of all types, however, within residential there are different types and each of these too has their own risk profile.  For example an established house is generally a lot less risky than an off-the-plan apartment.

The most risky

Special Use, at the other end of the risk spectrum, is the highest risk.  This is very niche and they are generally subject to stringent legislation and controls which, if changed by future Governments, can easily have a significant impact on your investment performance.

 

Where does NDIS fit in?

New property types enter the market from time to time; NDIS is one of these and these investments are getting lots of headlines at the moment due to the lack of accessible housing for people with a disability, as well as the recent Government incentives to boost the availability of such accommodation.

NDIS is also a great cause to invest in as you are providing a wonderful community service and addressing a very important gap in the accommodation market.  Access to lending for NDIS is, however, more challenging than for a normal residential property, so you need to take this into accout.

NDIS is an interesting one from a Risk perspective as it is Residential but also Special Use, so it’s risk profile probably sits in the medium range in my opinion.

 

It’s not ALL about YOUR RISK PROFILE though…

It is important to understand though that your RISK PROFILE alone does not dictate your investment journey. Albeit it is a big component.  You may be LOW RISK by nature, have 4 residential properties already, and looking at retirement.  In retirement you may want a higher yield and less focussed on capital growth, so you may therefore sell one of your residentials and invest in commercial for example.  You should, however, still be aware of the acute risks in Commercial and make sure you can handle these/mitigate them.

Access to funding is a consideration too.  Lenders rate different property types differently and so the LVR requirements change, and the amount you can borrow for different investments will change – this is very much driven by Risk as well, but by the risk the lenders place on certain property types themselves.  Some lenders don’t even lend for certain types of property!  So this is another important consideration.

 

GET IN TOUCH – regardless of whether you are starting your investment journey, or a seasoned investor, risk plays an important part.  The first step in our engagement with most clients is an online Risk assessment questionnaire, to ensure our proposed strategy is uniquely tailored to your situation. Let us help you take the next step in your investment journey – contact the Niva team today.

 

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