Investment Articles

Pools are often an important consideration of any real estate buying decision. They are convenient and can add beauty and class to a home. Though you probably won’t have difficulty finding a home that already has this feature, you might also want to consider the feasibility of adding one to a property you really want to purchase, then rent or later sell if it is not already included. While pools are definitely an expense to install, you will find them well worth the effort, especially if the investment property is located in an area where summers are particularly hot.

Many families enjoy in ground pools during the summers and don’t mind the necessary upkeep. This is important to consider, especially if you plan to rent your investment property out to families. Even individuals enjoy pools so this may still be a selling point for some who have never had access to their own swimming pool. When looking for real estate, above ground pools are also a good choice. You will need to have enough room to install one which involves measuring your property and ensuring there aren’t power lines or trees nearby. You will also need to make sure you have a level piece of land on which to place the pool before purchasing it. When you are installing an above ground pool, you will need to think about the amount of space your Indianapolis real estate property occupies. Many of the above ground pools require enough room for supports and struts in order to keep the sides sturdy. Look at the weight of the water that is in the pool and you will see that it needs supports.

You will also need to have a power source for your pool. All pools will have filters installed and those filters will need to work in order to keep your pool from becoming dirty. This is why it is a good idea to install a power cable near your pool and change your filter on a regular basis. You will need to know when to turn it off for the winter season. This will keep it from becoming damaged during cold weather. You will also need to have a cover for your pool to keep it clean and secure. Pools are nice to have, but they can also have a bearing on the space and quality of your investment property. When you look at other options for your pool, keep this in mind. You want to have a pool that will be enjoyable to those renting or buying from you, thus making it well worth your while to have it installed.

Copyright (c) 2010 Jack Bosch

Jack Bosch has revealed where to find the best investment property just for you at www.landforpennies.com. You can get a free preview of Jack Bosch’s innovative course by visiting www.landforpennies.com.

Investing successfully and making millions means following certain basic principles. You don’t have to be an expert and also don’t need a so-called “expert” to invest your money for you. You need to educate yourself, not with degrees or diplomas but education that will give you financial freedom. Unfortunately they don’t teach this education in schools or in universities.

Here is some basic education that will put you on the road to financial freedom:

Take responsibility for your own money. Don’t ever give your money to someone else to invest for you. It doesn’t matter who the person is or how secure you think the investment is. DON’T. I have observed over the years how people have lost their life savings in supposed secure investments, where these investments use a reputable company or persons name to back the investment i.e their recommendation.

Beliefs like “You are not qualified to look after your own financial future” and “you are not clever enough to understand certain investments” are myths that have been spread into the market place so as to increase your dependence and reliance on financial institutions who are not interested in you becoming financially free.

P.S. Nobody cares more about your money than you do.

P.S.S. Don’t invest in anything you don’t understand.

Never invest in anything you have to rely on someone else like the so-called “expert” to explain to you or to handle for you. Your investments must be structured so they have compound growth. Take an example of an “investment property”. The property’s value increases yearly plus the rental return increases.

Be patient
There is no such thing as overnight riches.
Be very aware of “get-rich quick schemes”.
No one cares more about your money than you do.

About The Author
Gordon Mackay the author of The Streetwise Millionaire, is a world leader in helping people create wealth. As a speaker and author on the subject, he uses his personal experiences as his subject matter. His teachings are based on truth and facts. For more articles on how to Retire in 5 years or less http://www.thestreetwisemillionaire.com/articles.html or to get your FREE Streetwise Millionaire Mini Course go to http://www.thestreetwisemillionaire.com.

Australian Residential Real Estate is a proven long term investment supported by substantial income tax deductions. Property investors typically negatively gear a property to get the maximum deduction. In essence the property must run at a loss from an income point of view in order to generate most of the deductions (depreciation being the main exception). This does however mean that you need a strong cashflow to support the mortgage payments. It has always been possible to positively gear a property but that required a large cash deposit. This has all changed with the introduction of NRAS (National Rental Affordability Scheme).

The National Rental Affordability Scheme or NRAS, was launched in July 2008 by Australian Treasurer Wayne Swann along with Housing Minister Tanya Plibersek. The program creates a new category of investment property which in many cases can be income neutral or positively geared. NRAS property is fully freehold owned by an investor, but benefits from being approved by the Government Agents for rental to qualifying families at a reduced rent (less 25% in Queensland) in return for significant annual tax credits and a ten year membership of the program. The governments aim is to deliver 50,000 rental dwellings over four years nationally that can be rented by qualifying families at a reduced rent. It is estimated by the Government that over 1.5 million households will be eligible for tenancies under the NRAS program, giving the property purchasers a high level of secure rental demand.

As mentioned above, many investors particularly those on high incomes will find that investment in one, two or more NRAS properties is income positive. This means that the rental income earned plus the tax credit and allowing for tax deductible property depreciation, the investment actually returns more to the investor than he/she pays out in interest payments.

Being freehold property, investors will enjoy the same level of capital gains as any other comparable property in the same market. In 2010 the combined Federal and State government NRAS tax credits amount to $9,140 per property and the amount is adjusted for CPI increases over the 10 year life of the scheme. That amounts to $91,400 in Tax Credits the governments will contribute to a property that you own. Note that these are credits which are far more valuable than tax deductions.

An NRAS property must be approved as such prior to construction. To invest in an NRAS property you should contact an NRAS strategic alliance partner with access to properties of all types and who can advise you on the best investment strategy for you. All of the normal guides and caveats still apply when investing in NRAS properties so you do need to get expert advice.

You can find experts who can give advise on investing in NRAS property at http://www.nras-property.com.au

One of the most common questions I hear is from keen investors wanting to know the best gold coins to buy as an investment.

The most important thing people seem to overlook is the ease in which you’ll be able to sell the coins. It sounds obvious, but so many buyers focus purely on trying to get as much gold for their money when they invest that they forget to consider the liquidity of the gold.

Remember that your profit is only realised on physical gold when you actually sell the coins at a profit. So when buying coins your primary focus must be on choosing well known coins in desirable condition. So please don’t be tempted by an obscure coin just beacuse its £10 cheaper than its globally renowned alternative. With this in mind, any of the well known bullion coins are a safe bet. These could be Sovereigns, Britannias, Krugerrands, Eagles, etc. You can find a comprehensive list with thorough descriptions by clicking here.

A novice should never try to be too smart by delving into the world of numismatic or historical coins. These generally present high potential profit, but also large losses for those without market experience. Proof coins should generally be avoided by the gold investor as you won’t necessarily get the full premium back that they command.

For very modest investors it can be fun to select a variety of bullion coins for your portfolio, perhaps choosing some Sovereign coins with an interesting background or coins with beautiful designs.

However, for those UK investors considering a more sizeable investment you must consider factors such as tax. Capital Gains tax was recently increased for higher rate tax payers in the UK to 28%. That means that if you sell your gold coins at a profit exceeding your annual limit (currently around £10k) then you’ll pay away almost a third of that excess to the taxman. Any other assets you sell in that year will use up that £10k limit too. So if you sell shares or an investment property and make a profit, you’ll no doubt be paying CGT on all your gold profit!

The great news is that with some careful planning and help from a reputable gold dealer, you can source tax free gold coins. Britannia and Sovereign coins are free from Capital gains Tax for UK residents due to their status as legal tender. Quite simply the taxman cannot tax the movement of legal currency. For this reason, together with the fact that these two coins are amongst the world’s best known, most UK investors are best off investing into these tax free gold coins.

The most important rule with gold coin investing is that everyone’s situation, needs and motivations for buying differ, and so the best gold coins to buy may also vary. This is where the real value of a knowledgable gold dealer pays dividends!

The old adage that many of us have heard over the years of “Don’t put all of your eggs in one basket!” simply means diversification with regard to investing. So what exactly are the reasons that you should have a diversified investment portfolio?

Diversification means spreading your money in various different assets classes such as equities, property, bonds, and money markets. It also includes investing in international markets. But why is this important and does it still apply when these days most asset classes look to be such a basket case? Some reasons to diversify…

• Not all assets act in the same way and at the same time. Usually when shares are performing well bonds are not. There are times when this does not work but generally when interest rates are low shares are more popular. And we can see that gold has seen a rise in the current uncertain investment climate.

• Not all industries react to the same market conditions. In this instance think of two hypothetical companies. One is a winter investment selling rain umbrellas and the other sells sun screen lotion and tends to be a summer investment. During winter umbrellas sell well and during summer sun screen lotion is popular. Sales vary for each but if you were to put the two together you have the same average return and therefore reduce your risk.

• Investing in different geographical areas means you are not subject to the same natural disasters which will affect business differently. Take for example the recent Christchurch earthquake. Many businesses have struggled, having to close either due to damage of their premises or the effects of damage to the surrounding properties. Then again there will be a boom for builders in the months and years ahead as the city is rebuilt. There’s also the decline in property sales and values but those with undamaged investment property find their properties in demand as people look for rentals as their damaged homes are repaired.

• Investing all available money into finance companies was a bitter lesson for many New Zealanders who once saw these investments as a safe haven with a known rate of return. This was a lack of understanding of risk and unfortunately many placed all their funds in one company. Diversification within an asset class is also important to lower risk.

• During the Global financial crisis many moved away from equities and invested in cash. US Treasuries actually went up in the crisis showing that having them in your portfolio would have reduced your losses as they offset plunging markets. And who would have thought that some of the major US companies around before the crisis such as Citigroup would need bailing out.

While diversifying does not eliminate risk it does reduce your risk. Having a diversified investment portfolio still applies as a long-term strategy.

Lyn Bell has been in the finance industry for more than 30 years and is a Certified Financial Planner. She has helped many clients achieve their financial goals. Sign up to get Lyn’s free newsletter SoundFinance and receive a free gift.

A disclosure statement is available free on request.

Arizona investment property has been the source of much news in recent years. First for its rapid appreciation rate right up to the credit crisis, and then for its equally dramatic depreciation from the highs of 2006. The most amazing thing about the rise and fall is the number of people who never saw it coming. And even more astounding is the amount of “wealth” that was destroyed in such a short time period, ultimately resulting in so many people having more loan than house.

However, for those who have positioned themselves properly, the next decade will hold unprecedented opportunity to create wealth using real estate! This is no exaggeration. Never before in our nation’s history has there been a more perfect to time to take a hard look at investment property, especially Arizona investment property. I know that’s a bold statement, yet I am completely confident making it. That confidence comes from knowing that governments around the world are behaving irresponsibly and are printing money like never before in history. In addition, government has taken on debt loads never before seen in history! These two factors form nothing but a financial house of cards that is unsustainable.

Do the factors mentioned above affect you? Yes… Maybe even more than you know.

Let me explain…You have worked hard or smart and set aside money for retirement in some form of account. I would bet you that your retirement account is denominated in US dollars. Lets say you have been able to set aside $100,000 in cash. How would the government’s ability to print money impact the purchasing power of your cash? The printing of money causes the purchasing power of your cash to diminish.

For example, what kind of new car can you buy today for less than $3,000? Can a new car be bought for less than $3,000? Did you know that in 1970 $2800.00 would buy a brand new Camaro with a V8? Whereas today, a new Camaro with a V8 starts at $31,000! How is that possible? Today’s assembly lines are much more efficient and automated with less metal going into today’s vehicles. The answer is simple: Inflation.

The creation of paper dollars causes inflation which devalues the existing cash. Your cash! How much will that 100k you saved be able to purchase in the future? It will depend greatly on what you do with it today.

The second way governments take from you is taxation. How much will the tax rates be in the future with ever expanding debts owed by our country? Bigger debt requires bigger payments. Since the government does not produce and sell anything, it’s cash comes from you in the form of taxation. In the last 4 decades the US has gone from being the world’s largest creditor nation to the greatest debtor nation in history! Now is the time to protect yourself from future taxation.

Investment property can protect you from both inflation and taxation. In addition, there is the added benefit of cash flow. Places like Arizona which have been hit so hard by the change in market direction have investors and property hunters taking on investments at unbelievably low prices.

Let’s examine the effect cash flow Arizona Investment Property can have on inflation, taxation, and cash flow:

Inflation: The price of “real things” rises in an inflationary environment. Look at the price of gold, silver, copper, sugar, and cocoa to name a few. Real estate is a real thing. It’s tangible and will always have an intrinsic value because people have to live somewhere. Crops have to be grown somewhere. Real property will in general keep pace with inflation.

As the credit crisis is worked out you will see (and we are seeing now) prices stabilize and then resume a gradual or perhaps a drastic rise depending on how much inflation is put into the system by the Fed and Treasury. That doesn’t mean that property prices will not fall further; however, property should not be purchased with the sole intent of speculating on price. Investment property will produce cash flow when purchased properly. Those who have the foresight to understand that investment property in Arizona, for example, has taken a tremendous hit offering a buying opportunity at incredibly low prices… These price levels provide more opportunity for appreciation for those who choose to buy now and hold the property as a rental. With many properties selling for less than $100,000, the opportunity for the average person to purchase their first Arizona investment property, or foreigners such as our Canadian neighbors to the north to purchase their very own Arizona vacation property is at all time highs!

Taxation: Buying and holding an investment property may provide great tax advantages. Depending on how you hold or own the property you may be able to write off expenses and depreciation against other earned income from your job! Seriously, ask your accountant.

Cash flow: This is really the hidden gem of advantages. Say you have your $100,000 invested in a property in Arizona. And, that property pays you or cash flows $1000 per month to you in rental income. You have now created a 12% annual return on your invested cash! You also have the potential for appreciation! And, you earn this income in a tax advantaged way which means you keep more of what you earn! You also own the property which give you control to sell or hold the property depending on market conditions.

When is the last time you earned 12% on your cash in a mutual fund or bond?

So why Arizona investment property specifically? It seems that these arguments would apply to most any investment property, right? Perhaps, however, when investing one should look for the highest degree of possibility for a winning investment. And, of the states that have been most beat up by the trouble in the markets, Arizona offers statistical factors that are not found in places like Florida or Nevada who also suffered from the downturn.

That that point, Arizona has not had a negative year of population growth in the last 40 years! Even during the recession the population of Arizona has grown, which of course will require or demand housing.

Arizona also offers new business growth:

“Good universities in the area have provided a skilled and educated workforce, which has positioned Phoenix as a competitive force in business,” says Bill Humphrey, senior vice president and managing director of XONEX Relocation, which provides global relocation services for transferring employees.
“Phoenix is projected to see more growth, especially since the technology, green energy and healthcare/life sciences industries have started to put down roots in the area.” Humphrey says houses that were selling for $500,000 before the recession are now in the $300,000 range.

This equates to more jobs which will draw even more attention to Arizona in this economy as more and more people struggle to find employment. These people will require housing.

Further, as the saying goes, “retail follows rooftops”, meaning business will flourish where populations exist to support it. This influx of people will provide Arizona a quicker recovery and a robust economy.

When you take the facts mentioned above together with the fact that Arizona investment property prices are at their lowest levels in more than a decade, its easy to see that those who invest in Arizona property now will benefit from higher cash flows and steadier rents, greater property appreciation due to both demand and inflation, and a more robust local economy in which to operate.

All of this gives an investor an edge over other areas when considering investment property.

The advantages are many… I haven’t even scratched the surface of this topic, however, you will want to learn more about Arizona investment property and it’s benefits.

Jason Archer is the Managing Partner of Clear Vision Investment Group.

Many people dream of owning some investments one day. People look forward to owning something that will hopefully give them some money in the future. For a lot of people though, this dream never eventuates as lots of people think that they need to save lots of money before they can think about investing any money. Sadly, lots of people don’t know the tricks to budgeting and saving money so their dreams of investing remain on the “to do” list for many years.

Having a good control over your money is certainly the first stepping stone before you consider any investment. Saving sums of money will lever you into certain investments such as term deposits, managed fund, shares etc. However if you wished to invest in a property, it would be really difficult to save sufficient money to buy an investment property especially if you already owned your own home. So what can you do as an alternative?

Well if you already own a home you are likely to have some equity in it especially if you have had it a long time, paid a lot off your home loan or if property values have risen since you purchased it.

What Is Equity?

Equity is the difference between what your home is worth and what the balance of your home loan is. In other words it is how much of your house you actually own.

e.g. Jack has a property worth $380,000 and he has a home loan for $180,000. His equity is therefore $200,000.

Peter and Jan have a property worth $684,000. They have a two home loans totalling $249,000. Their equity is therefore $435,000.

How Does Equity Increase

There are a number of ways that the value of your equity can increase

1. Paying down your home loan

2. Paying out your home loan

3. Property values increasing

4. Improving your home so the property is worth more

How Do You Use Equity To Invest

Banks are generally willing to lend you money against the security of your house. They take a mortgage over your home which gives them the power to sell your home if you don’t repay your loans. They are often willing to lend about 80% of the value of a property. This means you might be able to take out a loan against your house and use that money to invest.

e.g. Jack’s property is worth $380,000. IF the banks were willing to lend him 80% of the value of his home, then they might consider lending him $304,000 ($380,000 x 80%). As he only owes the bank $180,000 on his home loan, he could have the potential to borrow some more money and to use this money to invest. He could potentially borrow up to $304,000 giving him access to $124,000.

Peter & Jan’s property is worth $684,000. IF the banks were willing to lend them 80% of the value of their home, then they might consider lending them $547,200 ($684,000 x 80%). As they only owe the bank $249,000 on their home loans, they could have the potential to borrow some more money and to use this money to invest. They could potentially borrow up to $547,200 giving them access to a further $298,200.

What Sort Of Investment?

Depending upon how much equity you have available, you could use your equity to invest in any sort of investment that suits you and your particular circumstances. You would need to speak with an accountant / financial adviser / real estate agent / share broker to discuss your different investment options. You would generally be looking for investments that have the potential to rise in value over time. These are called capital growth investments.

There are many tricks to investing wisely and you should always do plenty of research and consider all of your options and personal circumstances before making a decision where to invest.

Loan Repayments

Any loan you take out to buy investments is likely to have some sort of regular repayment plan. As an example you might have to make a loan repayment each month or you may have to meet an interest payment every quarter. You can explore your loan options with your loan broker / banker.

A lot of investments don’t give you sufficient income to meet the repayments on the investment loan (such as property) or if they do, the income may not come through regularly enough (your loan repayment might be due monthly, but an investment such as shares generally only pays dividends half yearly). Before you look at borrowing to invest, you need to ensure this new commitment sits well within your budget and that you can afford to carry additional loans.

Risks

There are risks with all forms of investing and these should be carefully considered before you make any commitments. A financial professional will be able to discuss these with you. Borrowing money doesn’t increase or decrease the risk of a particular investment. That investment would carry its own risks irrespective of whether you paid cash for the investment or borrowed money for the investment. The investment itself doesn’t change based upon where you sourced the money.

What additional risks you do carry if you borrow money to buy investments is that if the investment falls in value and if under a worse case scenario you lost all of your money, you would end up with a debt owing to the bank for something that you no longer own or was worth less than the loan.

You should therefore consider the strength of the investment and the likelihood of it going up in value over time. It might not be wise to chase speculative investments if borrowing money and remember any investment that looks too good to be true generally is.

Hopefully this article has given you some ideas how you can use your home equity to buy some investments. This article is intended as a guide only and naturally you need to speak with financial professionals who specialise in the fields of financing and investing so you can do the appropriate research before you decide whether or not borrowing to invest suits your individual circumstances. Happy researching and happy investing!

Hello, this is Detective Heather here from Money Detective Pty Ltd. I help people overcome all sorts of money troubles so that they can reduce their stress. Whether you can’t afford your bills, can’t save, find your credit card out of control or if you worry about your future, I am here. I am very passionate about money and helping people so I am here for you.

© Money Detective Pty Ltd 2009

There are many advantages when a Super Fund acquires residential or commercial property. Just to name a few…

A maximum 10% capital gains tax on sale of property if held for at least 12 months;

Potentially nil capital gains tax on sale of property if sold in pension phase;

Maximum of 15% tax on rental income;

All rental income received assists in paying off the mortgage loan;

Any expenses such as interest, council rates, insurance and maintenance may be claimed as tax deductions by the super fund, which potentially reduces its tax liability;

The super fund pays the required deposit (+ costs) on the property being purchased;

If you are a self employed business owner and currently own commercial property, you can transfer this property into the super fund;

A great way to generate wealth for your retirement through tax effective super contributions;

Greater investment choices and control over your future;

The super fund can pay out or reduce the mortgage at any time (subject to the terms of the relevant loan);

Through gearing, the super fund can acquire real estate property for a greater value than that of the funds ‘net worth’;

Other than the property acquired, all other super fund assets are safe and cannot be touched by any lender due to the ‘limited recourse’ provisions in section 67 (4A) of the SIS (Superannuation Industry – Supervision) Act.

A Super Fund is now permitted to borrow money and charge assets provided the borrowing complies with the following:

The fund may select any property (residential, commercial, retail or holiday units). The purchase must usually be an arms length transaction (i.e. the property is purchased from a ’stranger’). There is an exception for ‘business assets’ (i.e. property leased to a tenant who conducts a business in the property). In this case, the property may be purchased from a ‘related party’ of the superannuation fund;

The legal title to the property must be held on trust by an independent trustee (called the ‘Property Trustee’ in these notes);

The beneficial title to the property will be held by the Super Fund;

A Lender will generally lend to the Super Fund on a limited recourse basis (i.e. the Lender’s recourse will be limited to the property, thereby providing the Super Fund absolute protection for its other assets). The Fund will charge its beneficial interest in the property to the Lender. In addition, the Property Trustee will grant a mortgage over the legal estate to the Lender. Certain lenders will also require personal guarantee from all members of the Super Fund;

All rents will be paid directly to the Fund;

The Fund will make loan repayments to the Lender in the ordinary way;

Funds can deal with the property however and whenever they like, in the same way as you can deal with ‘normal’ investment properties (e.g. lease, renovate, repair, or sell);

The Fund can pay out or reduce the mortgage at any time (subject to the terms of the relevant loan);

When the mortgage is paid out in full, title to the property may be transferred to the Fund by the Property Trustee or the Property Trustee may continue as registered proprietor.

It is important that the legal structure clearly complies with all the above requirements. Failure to do so may result in the Fund becoming a ‘non-complying’ fund within the meaning of the SIS Act.

It is also important to adhere to the lenders varying trustee requirements when establishing the legal structure.

http://www.smsflending.com

© SMSF Lending |ABN: 99 262 546 801

There once was a time where the world did not think much of Canada. It was the backwater of North America, a simple piece of landmass that was known best as the 51st state. Times have changed, and Canada has moved from being on the periphery to taking centre stage.

The events of the last year has seen the emergence of Canada as an important economic actor on the world stage. Canada has emerged from the crash of 2008 and subsequent recession unscathed: the country experienced no subprime mortgage crisis, nor do we have a sovereign debt crisis like the European Union. Canada has already exited the post-recession recovery stage and entered a period of growth. Canadian banks are in sound shape, and are being regulated by sound monetary policy by the Minister of Finance and Governor of the Bank of Canada.

If you are planning to invest in real estate in British Columbia, Canada, one of the challenges is to decide on a strategy that would bring the highest returns. In the current market, you can no longer count on quick price increases and flipping. Now that real estate prices are stabilizing, one must think about long term strategy for their investment. The easiest and most popular one is to rent unfurnished property for a long-term. However, more and more landlords are realizing that they can get higher returns in short-term furnished rentals market, particularly by converting their investment property into a corporate housing unit. Corporate housing units are rented to companies which send their employees for short term projects or relocate them on temporary basis. Since the company is responsible for the rental payment and the unit, property owner can be sure that the unit will be in good condition and always paid for.

In the city of Vancouver there is an enormous demand for corporate housing because of the nature of the economy. Vancouver is home to many large corporations in a variety of sectors which often bring in employees from other parts of the country or around the world on a temporary basis. Examples of this can be found in the film, technology, software, and shipping industries. Film companies will often assemble a cast and crew for a production that lasts a few months; technology companies such as Telus will bring in staff to Vancouver for training courses that last a number of months; software companies such as EA Games will import talent from their other offices for the production cycle of a video game. Regardless of which specific industry it is in Vancouver, there will be a perpetual demand for furnished property rentals.

If you are considering investing in Canadian real estate, an investment in Vancouver apartments and condominiums is a wise one. If a landlord takes the time and spends the money to tastefully furnish the property, its possible to make an impressive return on investment that will perform continuously.

Sam Reynolds is the web-intern extraordinaire at Golden City Rentals, Vancouver`s leading provider of furnished apartment and housing rentals. If you looking for furnished apartment rentals, furnished house rentals, or Vancouver corporate housing look no further than Golden City Rentals.

What most of us have been taught about risk is wrong, and it’s probably holding you back from obtaining real wealth.

Conventionally we’re taught that there’s a continuum of risk starting with low risk investments at one end of the spectrum to highly speculative, risky investments at the other. We’ve been led to believe that any investment can be placed somewhere along this continuum and in general, the higher the risk, the greater the potential rewards.

The fundamental problem with this logic is that you are taught to evaluate the risk in the investment itself. There’s something very important missing from the equation…and that’s you the investor.

Imagine you are considering undertaking a small property development. Traditionally you would look at this proposal in isolation and ask yourself, “Is this a risky venture?”

But here’s the thing: that question is impossible to answer in isolation because we still don’t know enough about you. Have you ever invested in property before? Have you ever completed a property development? Do you have the knowledge, skills, contacts and experience required to successfully complete a property development? If you have no, or limited, knowledge about council zoning, town planning, feasibility studies, building costs and the building process, no matter how good the deal itself might be on paper, jumping head long into your first property development will be a high risk proposition for you.

Over the years I’ve seen people make a lot of money out of real estate, but over the same time, in the same market and the same economic conditions, I’ve seen just as many people lose a lot of money. The difference is in the individual investor’s skills, contacts, strengths and expertise.

So in light of this new idea associated with risk assessment, let’s take a closer look at what really makes an investment more or less risky.

1. What is your area of expertise?
Your experience and network of contacts could be your biggest competitive advantage or your most potent risk factor. If you’re investing in something that is your speciality, you start with a built in advantage that will allow you to achieve a higher return than other investors.

2. What level of control do you have?
The more control you have over your investment, the lower your associated risk.

3. Is there transparency?
The more you know about what is happening with your investments, the lower your risk.

4. How liquid is your investment?
How easy it is to access your money by selling your investment and converting it (or part of it) to cash. The more liquidity, the lower your risk will be.

5. How do you achieve your returns?
Property investors receive returns from their investment property in four distinct ways;

a) Cash flow – the rent you receive

b) Capital growth – the increase in the value of your property as the overall values in the area increase

c) Forced appreciation – the increase in value you “manufacture” by undertaking renovations or redevelopment

d) Tax benefits – such as depreciation and tax deductions

The more secure the returns on your investment, and the less dependant you are on any one of these four categories, the less risky your investment will be.

6. Is your equity safe?
Is the initial money you outlaid to acquire your investment secure should the investment fail?

7. What is your personal liability?
When you make an investment, you are sometimes required to provide a personal guarantee. If you do, this gives others (usually the banks) the right to pursue you personally for any lost funds should things go pear shaped.

8. What is the market risk?
Some risks are inescapable as they are inherent to certain markets. For example if you invest in tourism, you are subject to the market collapsing if a natural disaster occurs, such as a cyclone, a Tsunami or a disease outbreak.

9. The specific investment risk
This is the risk specific to the particular investment itself. Is it the right property, in the right suburb, at the right price and at the right time in the cycle?

When assessing risk, most investors focus only on the last two factors – the market risk and specific investment risk. This tunnel vision often means that they fail to take account of other critical underlying factors that, in many cases, are more significant.

Your take home lesson should be that while most investors spend vast amounts of time analysing the deal, you must spend more time understanding yourself better.

My risk spectrum is different to yours and relates to my expertise, my background, the things I’ve done, the lessons I’ve learned and the mistakes I’ve made. Which means that some types of investment are much less risky for me than for you!

In the same way, you have your own risk profile and you need to take the time to assess what that might be. Whenever you consider putting your money into an investment, don’t make the mistake of analysing the investment in isolation – look at that investment in relation to yourself. What type of investment choices are low risk for you? What type of investment is medium risk for you? And which type of investment is high risk for you?

Remember that even though all investment comes with some degree of associated risk, you can change this by developing expertise in an area and make the journey to your own financial freedom a low risk, high return venture.

Michael Yardney is a best selling author and one of Australia’s leading experts in the psychology of success and wealth creation through property. He is a regular keynote speaker at seminars throughout Australia and South East Asia and his opinions are frequently quoted in the media.

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Find out more about Metropole Property Investment Strategists http://www.metropole.com.au