Discover your risk profile. Are you cut out to be a property investor?

Property investment education - investment risk profile
Prior to purchasing your first investment property it is critical that you make yourself aware of is your own risk profile.

How comfortable are you with taking risks?
How will you cope when interest rates go up or a tenant moves out your property?
Will you lose sleep over property values, debt, bills, or fear of the unknown?

Let me tell you some hard truths right now. If you invest in property;

  • There will come a time when the tenant doesn’t pay rent
  • There will come a time when interest rates go up
  • There will come a time when the tenant damages your property
  • There will come a time when you are not happy with your property manager
  • You will owe the bank money
  • You will need to trust that your property is being looked after without making daily visits
  • The unexpected and unknown will happen to you

If you think you’re unable to cope with any of these issues then maybe you need to look at what lies behind your discomfort. If you’re still not comfortable then it’s critical that you consider your risk profile when you are making strategic decisions. It’s important that you can sleep at night!

Property investing is a business, and like all businesses there is an element of risk. When you’re prepared to understand and deal with the risk then you are probably ready to be a successful property investor.

Below is a survey which will help you to assess, and become familiar with, your own risk profile.

Discover your risk profile:

Here are a list of statements. Pick the response that is the most appropriate for you (even if more than one response is suitable).

  1. My age is:
    1. Less than 30
    2. Between 30 and 45
    3. Between 46 and 60
    4. Over 60
  2. My current personal situation is best described as:
    1. Single and intending to stay that way
    2. Single but I would like to be partnered (and possible have a family)
    3. Partnered with no independents (and expecting it to stay that way!)
    4. Partnered with independents (and this won’t change for a little while)
  3. The amount of time I envisage I will be able to spend on my investments is:
    1. Less than 30 minutes per week
    2. Between 30 minutes and 2 hours per week
    3. Between 2 and 8 hours per week
    4. Above 8 hours per week
  4. Generally, I:
    1. Love to take risks and enjoy having excitement in my life
    2. Am happy to take risks if I can see that the rewards will be worthwhile
    3. Prefer to stick to what I know but am happy to try new things once in a while
    4. Highly value security
  5. The timeframe within which I would like to realise my financial goals is
    1. over 20 years away
    2. 10 to 20 years away
    3. 5 to 10 years away
    4. within the next 5 years
  6. I tend to make decisions
    1. On feel / using my heart
    2. according to the option which is the most exciting
    3. after carefully analysing the numbers
    4. because I need to sleep at night
  7. The level of “financial skills” I believe I have is
    1. Advanced
    2. Intermediate
    3. Beginner
    4. Absolutely none
  8. The amount of cashflow I currently have is
    1. Above $100,000 per annum
    2. Between $25,000 and $100,000 per annum
    3. Between $5,000 and $25,000 per annum
    4. Less than $5,000 per annum (could be negative)
  9. My level of interest in property is
    1. Very low – below that of the average person
    2. About equivalent to the average person
    3. Keener than the average person
    4. I’m practically an expert!

Scoring

For every answer, score yourself the following;

  • three points for each (a)
  • two points for each (b)
  • one point for each (c)
  • zero points for each (d)

Add up your score (the highest possible score is 27). If you scored:

Less than or equal to 10There are some indicators here that you may have a low tolerance to risk. It will be important to keep this in mind when you are considering your investments.
From 11 to 19Your tolerance to risk is quite similar to a lot of people. With careful planning and good education, you will probably find your comfort level with investing increasing dramatically.
Greater than or equal to 20You seem to have a high risk profile. This means you are quite comfortable with, and possibly even enjoy, taking risks.

They say that knowledge is power. You now have a little more knowledge about the type of investor you are. Now that you understand more about your own risk profile, make sure you keep this in mind when you consider your investments.

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