6 surprising ways to reduce investment risk

“Skipping thorough market research can result in poor location choices and overpaying for properties,” Nikou warned.

To make sure your investment pays off, his advice is simple: “Always conduct due diligence.”

Here are the investment expert’s six surprising tips for minimising risk and maximising returns.

1. Look for distressed properties

A number of factors can cause a property to be listed at below market value.

Owners who are undergoing financial hardship may find themselves on the brink of having their property repossessed by a lender, and may be less discerning about the final amount their property is sold for in their quest for a quick sale.

“Investors can identify undervalued or distressed properties by looking for signs like extended periods on the market, price reductions, or visible neglect. Checking auctions and short sales can also reveal opportunities,” said Nikou.

“Always conduct thorough inspections and due diligence to assess the true value and potential of these properties,” he advised.

2. Partner up with others

Pooling resources is a good option for investors looking to minimise individual risk.

“Networking is crucial in real estate investing as it helps investors find deals, gain market insights, and access resources,” said Nikou.

As well as building strong relationships with your existing circle of service providers – such as agents, property managers, lenders and contractors – Nikou recommends joining real estate investment groups or online forums to expand your contacts.

“Partnering with other investors can help you pool resources and share risks,” he stated, noting that strong relationships can lead to supercharged opportunities in future investment endeavours.

3. Check the macroeconomics

Local market research is crucial when selecting a suburb to invest in, with rental rates, property values and growth patterns all essential factors to keep in mind.

But zooming out and considering long-term economic ebbs and flows are just as integral for ensuring stable future growth.

“Knowing the economic health, job growth, and population trends of an area can help you predict future property value and rental income potential,” said Nikou.

Macroeconomic factors like interest rates, inflation, future job opportunities, and major upcoming developments can help predict whether property in an area will rise or fall.

“Economic growth boosts employment and income levels, leading to higher demand for properties and potentially higher returns on investments. Understanding these factors helps investors make informed decisions and anticipate market changes,” said the investment expert.

4. Go green

Sustainable upgrades and renovations are a great way to boost cash flow in the long and short term.

“Environmental sustainability features, like energy efficiency […] can reduce costs and increase appeal,” noted Nikou.

Not only can energy-efficiency upgrades warrant higher rental rates, they can also reduce running costs over the long run.

While these upgrades are great, it’s important to ensure they don’t become dated.

“Regularly review and adapt to market changes to ensure the investment remains viable and profitable over time,” Nikou advised.

5. Budget for bad luck

One of the biggest mistakes investors can make is to cross their fingers and hope that all will pan out well in the end.

In Nikou’s experience, one of the biggest pitfalls investors experience is overextending themselves. Without any financial wiggle room to tide things over when problems crop up, investors may find themselves forced to sell up.

“Failing to budget for repairs, maintenance, and unexpected expenses can lead to financial strain,” he explained.

He added: “Overleveraging, or taking on too much debt, increases risk, especially if property values decline or rental income falls short.”

“Always conduct due diligence, maintain a financial cushion, and avoid overextending yourself to ensure successful real estate investments,” he advised.

6. Triple check your tax calculations

Tax calculations are complex, and getting them wrong can be the difference between keeping a property and losing it.

“Owning a portfolio of properties has several tax implications. Rental income is generally taxable, but you can deduct expenses like mortgage interest, property management fees, and maintenance costs. Depreciation is another significant benefit, allowing you to reduce taxable income over time.”

Despite these benefits, it is crucial to factor capital gains tax into your calculations when preparing to sell.

Local tax laws may also differ between states, so it is essential to check that no tax requirement is unaccounted for when putting calculations together.