How to Understand Your Risk Profile as a Property Investor

How to Understand Your Risk Profile as a Property Investor

Every property investor has their own unique attitude and approach to risk management. The link between risk and return is well documented and understood, but knowing where to draw the line can be easier said than done.

Investing in property has become a more popular option for first-time investors than ever before. Attracted by skyrocketing house prices and generous rent yields, newcomers with no prior knowledge or experience are looking to get in on the action.

Among whom, many are entirely unaware of the risks involved, let alone the art of effectively balancing risk with reward.

How to Understand Your Risk Profile as a Property Investor

While it may be interpreted as a somewhat sweeping generalisation, what follows is a brief overview of three primary risk profiles that encompass most investors when investing in property bonds:

Low Risk

This is the category that includes investors who prioritise safety, stability and predictability. They do not have a huge amount of time to dedicate to their investments and are not looking to make money as quickly as possible.  Retirees and those approaching pension age usually fall within the low-risk category.

This is where low-risk buy-to-let properties often prove popular, purchased at a low price and generating modest but reliable yields. The lower-risk category holds little to no potential for making significant sums of money (short-term or long-term), but nonetheless reduces risk to minimum.

Medium Risk

This bracket encompasses mid-career professionals, along with anyone looking further into the future. They will typically be in a strong financial position and have enough money to spread across a relatively diverse investment portfolio.  At this level, the investor is more likely to work with a specialist broker or investment strategist, as opposed to handling their affairs independently.

The biggest difference within the medium risk bracket is the way in which it focuses on generating serious gains on a medium or long-term basis. The goal is almost always a prosperous and enjoyable retirement, or perhaps the opportunity to retire early. But given the longer-term nature of the strategy and the heavier ongoing capital investment, overall risk is elevated.

High Risk

This high-risk bracket covers investors looking to build a major investment portfolio as quickly as possible, in order to begin generating the highest possible profits. High-risk investment strategies tend to be shorter-term in nature – perhaps the use of bridging loans to purchase dilapidated properties, renovate them and resell them at significantly higher prices.

Consequently, this bracket is also exclusively populated by those who already have plenty of on-hand assets, capital and general resources at their disposal. Profits are often immediately reinvested in new short to medium-term ventures, with the aim of transforming a healthy risk appetite into a fast-access personal fortune.

Independent Broker Support…

First-time investors considering investment opportunities of any kind should consider independent broker support mandatory. Taking the time to explore the various different types of investments available and their suitability for your financial position is essential.

For more information on any of the above or to discuss your investment strategy in more detail, contact a member of the team at UK Best Investments today.