Running the risk: investing in property
In general, the property market is seen by many as a relatively stable place to invest cash. It often rebounds from setbacks over the long term, for example, and it’s often possible to capitalise on changes in the market later down the line. However, for some people, investing in risky property is the order of the day – and often with good reason. This post will explore the reasons why investors have chosen to go for the riskier investments.
Fundamentally, while the reasons for making investments in property can differ in context and appearance, they can all ultimately be traced back to one main reason: the potential for earning more money. In any investment scenario, the higher the risk you take, the higher the potential return will be – and the possibility of higher returns is used as an incentive by the seller to get investment cash. For property, investments with potentially high returns include office spaces in prime areas of major cities such as London – but in the event of an economic downturn, these investments may end up empty. This is something investment banking firms such as IPE Group, run by Mohammed Adnan Imam, take in to account when looking for real estate developments.
There are other related reasons why some investors choose to take a gamble on the property market. Often, investors with a lot of spare cash will invest most of it in places where returns are decent but relatively secure. In order to raise the chances that a segment of their investment will return more cash, they might devote a small part of it to high-risk options. If the value of that part of their investment declines, then they’ll hopefully still have some returns from the rest of their portfolio. If it rises, then they’ll be able to reap the rewards. In a diversified property portfolio, a number of relatively stable property investments may sit alongside more risky options.
The long game
The term “risky” is also relative, and what constitutes a risk to one person may not seem like a risk at all to another. To most investors, buying a property in a market that may decline sharply at any moment seems like a bad move. However, for an investor who doesn’t need to release the capital for decades, it’s often worth buying these sorts of properties on the assumption that the market will reverse over time, or that in the long term, they will accrue the capital needed to renovate or redesign the property to add value and recoup the lost equity.
To most people, investing in a risky property deal may seem ridiculous, but to seasoned investors who know what they're doing, it can actually be a really sensible move. In some cases, a risky property investment is simply a small portion of a highly diversified portfolio, for example, while in others, the investor has taken a long-term approach. Provided you have a clear strategy in place and know what you’re doing (and what the risks are), a risky property investment may in some cases end up paying real dividends.