Success comes when investors understand and mitigate property investment risks, according to property expert Rasti Vaibhav.
Risk is a normal part of the property investing process. Once this is accepted, investors can better focus on managing risk and their emotional responses.
This is one of the key messages from Rasti Vaibhav, one of Australia’s ‘go-to’ property portfolio strategists and the author of The Property Wealth Blueprint.
He joined KnowHow founder Bushy Martin on the Get Invested podcast to talk about the importance of embracing risks in order to enjoy the rewards of property investing.
“It’s all about clarity of long term goals and also appreciating the risks around it,” Rasti said.
“Just like any journey, property investing is full of ups and downs. And if we have the clarity of the end goal, we’ll know that is the part of the journey and we have to take the downturn with an open mind, accept that as a part of the journey and be mindful of them.”
Rasti said it’s about how you view risk. While many investors see risk only negatively, the reality is investing doesn’t exist without risk. This is why investors need to start shifting their focus.
“The challenge that we have in property investing in Australia is that the market spruikers talk about just the positives or the benefits of investing, talk about cash flow versus positive gearing, negative gearing versus capital growth. But to me, they are just the components of the return. And in any investment, risk and return go hand in hand because the whole investment industry is based on the expected returns or the rewards for the risk you are taking. So if you’re expecting any returns, we are actually taking some risk behind it,” Rasti said.
“Now risk is a dirty word, because lots of people think risk is something that we should avoid. Of course we should avoid it, but only if there are bad risks or downside risks. The whole reason we are investing is for the upside risk, as in the expected growth.
“There are a few ways that we define risk in investment industry. And the way I define risk is like a lot of people define risk – it’s the volatility or the unknown part.”
As an investor, it is important to understand the level of risk you are willing to take on.
“Then when it comes to wealth management, it’s about preservation of your own capital. Like when you are putting money in, are you preserving that capital or are you risking it to lose it altogether? So in what we do, and what I have done for myself, we are mindful of preserving the capital, because we don’t want to risk it unless the person has the appetite for it or the capacity to take risk, because the more risk we can take it also exposes us for the upside risks. So it is a meaningful discussion that we have around those (aspects), and one has to be comfortable and be aware of those risks,” Rasti said.
Once investors have a grasp of the risks involved, they can establish buffers and work towards the long-term growth of their property portfolios.
“To have a meaningful, designed lifestyle by property investing, we need a portfolio of 5+ properties. Now the question is for among the 90% investors that can’t go beyond one or two properties (according to statistics), if their first investment was working, then why can’t they get more? And it’s more about the lack of strategy or confidence or the risk buffers that don’t allow them to go forward,” Rasti said.
“It can only come when there’s a steadiness in the growth profile and being aware of those risks that we are taking deliberately and covering or mitigating those risks that we can’t avoid altogether.”
Finally, Rasti said investors also need to set themselves a property wealth blueprint and strategy to help them navigate their journey. A blueprint will consider an investor’s long term goals, their freedom numbers, their constraints, and their risk appetite and definition of risk, or their willingness and ability. This also needs to coincide with an investor’s drive to invest in their knowledge and surround themselves with a support network.
“Having a goal is just one part. You need to have a blueprint, have a strategy to get there and have the team. Like I can’t run a marathon on my own – I have to go to someone who has run the marathon multiple times and who knows very well as a coach what are the dos and don’ts. And same thing goes with wealth creation,” Rasti explained.
“Picking the right team to help and support you is so important and that’s where we need a mindset where we have to go and cry out and ask around what is the best way to get there … and I even still have a lot of coaches helping me with the next step.”
Listen to the full interview here.
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