How To De-Risk Deals And Secure Your Property Investment Future || Property Answers

Summary

In this episode of Property Answers, the focus is on de-risking property deals. Hosts John Howard and his guest discuss the importance of assessing and managing risks when investing in property. They highlight that risks differ for each individual, and understanding how to mitigate them is key to successful investments. The conversation covers risk management strategies, such as selling parts of a property early or securing deals through options. The hosts emphasize that experienced investors take calculated risks, while reckless decisions often lead to failure. Networking and expert advice are also crucial to navigating property risks.

Takeaways

• 💼 Property deals involve inherent risks, and 'de-risking' is crucial to minimizing potential losses.
• 👔 Wearing a suit and tie symbolizes professionalism in the property industry, where professionalism is essential.
• 🤔 Analyzing and assessing risks before making a purchase is vital; some risks can be mitigated after the fact, but it's better to handle them beforehand.
• ⚖️ Not all risks are equal—some are more likely to occur and can have a greater impact on deals than others.
• 📊 The perception of risk varies from person to person based on experience and expertise in the field.
• 💡 Entrepreneurs tend to take more risks, whereas professionals like accountants are typically more risk-averse.
• 🏠 De-risking can take many forms, such as selling a portion of a property or securing insurance to cover uncertainties like building regulations.
• 🔍 For new investors, identifying risks can be challenging; accumulated experience helps in recognizing potential pitfalls.
• 💸 Over-leveraging is a common mistake in property investing, and it’s important to have a broader risk management strategy beyond individual projects.
• 📈 Successful property developers focus on calculated risks, relying on professional advice and maintaining a strong 'batting average' over time.

Q & A

What is the main topic of the episode?

The main topic of the episode is how to de-risk property deals in the real estate industry.

Why does John Howard emphasize the importance of wearing a suit and tie in property?

John Howard believes wearing a suit and tie is a symbol of professionalism in the property industry, which he considers essential since property can result in significant financial gains or losses.

What is John Howard’s approach to managing risk in property deals?

John Howard's approach is to analyze the risks involved in a deal before purchasing. He asks himself what the worst-case scenario is and determines whether he can live with that outcome before moving forward.

How does the risk differ from person to person according to the conversation?

Risk perception varies based on experience. For example, an accountant may view a situation as highly risky, whereas an entrepreneur in the field may not, depending on their expertise in that particular area.

What role does categorizing risks play in risk management?

Categorizing risks allows investors to assess the likelihood of each risk occurring and its potential impact on the deal. This helps prioritize which risks to mitigate and which ones can be managed if they arise.

Can you give an example of de-risking a property deal shared in the episode?

One example of de-risking is buying three shops, selling the well-let one at auction to reduce borrowings, and thus mitigating the risk if the other two shops take longer to let than expected.

What is a conditional exchange, and how does it help de-risk a deal?

A conditional exchange means that the purchase of a property is only completed if certain conditions are met, such as planning approval. This reduces the risk of committing to a purchase before key factors are confirmed.

How can a new or first-time investor identify risks in property deals?

New investors can identify risks by consulting experienced professionals, conducting thorough research, and considering worst-case scenarios. Experience and guidance from experts help in recognizing potential pitfalls.

Why is it important to take advice from consultants and lawyers before making property deals?

Consultants and lawyers provide critical expertise, helping to identify legal, financial, or technical risks that the investor may not be aware of. Their advice supports informed and calculated decision-making.

What broader factors, beyond individual deals, should be considered to ensure overall financial stability in property investments?

Broader factors include not over-leveraging, diversifying investments, and maintaining enough capital to cushion against unexpected market changes like rising costs or economic crises, ensuring long-term stability.