Have you done risk management before?
Many people think of risk only in negative terms. Per definition a risk is an uncertain event or condition that, if it occurs, has a positive or negative effect. So risks can also be positive! We call negative risks threats and positive risks opportunities. Noteworthy is that they are both uncertain, so we do not know whether they will in fact occur or not, but if they do happen they will have an effect, which is the very reason for doing risk management.
The next question you might have is how to identify and manage risks in property investing?
The process of risk management involves planning, risk identification, and analysis, defining risk responses, risk monitoring, and implementing action plans. Sounds complicated? Not so – it is actually quite straightforward if you break it down into small, manageable steps, which I will be helping you with.
First, you plan how you will perform your risk management and then go about doing it on a continuous basis. Once you have identified applicable risks you need to evaluate the potential impact that a particular risk has in case it materializes and becomes an issue, as well as the probability or likelihood of that happening.
Next, decide what you are going to do about those risks. For the positive risks, it is fairly straightforward – exploit those opportunities to the extent you can. For the negative risks, decide whether you want to deal with the threats by avoiding, transferring, mitigating, or accepting them.
Manage your risks better by creating a risk register, then perform your actions as per your plan.In my book, I have risk reduction recommendations that you may want to consider in order to keep your risks low.
- Don’t lose discipline and stick to your strategy
- Switch off emotions when making decisions
- Build up financial reserves
- Have multiple exit strategies in place
- Know what you are doing
- Perform due diligence
Not all of them might be applicable to your situation, but it is still good for you to see the big picture, as perhaps in your next property, the situation might be different. Don’t let risks scare you away from your investment – just manage the risks.
Risks that arise from investing into property may include, but are not limited to, market and price risks, financial risks, country and currency risks, safety risks, and people risks—all of which are manageable risks if you manage them correctly.
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