Property Investing Risks: Personal Risks

Finally, we turn to the last risk category for a property portfolio, and that is you yourself.

Life is uncertain, and this uncertainty can impact your financial wellbeing.  While these types of risks apply whether you have a property portfolio or not, if your portfolio relies on your ability to generate income to hold over time, than the property portfolio can exacerbate the downside of personal risks further.

The older I get, the more I realise that life is uncertain & things can and unfortunately do go wrong.  There may be an unexpected accident or health crises, a job loss, a divorce, or a period of you not being at your best.

If these happen, it’s likely that your income may not be available and your personal expenses go up.

It is worth having a personal buffer, otherwise known to families as the ‘rainy day fund’ to cover this type of risk.

Your personal insurances

One way to partially manage the above risk is to have the appropriate life insurances in place.  Using your superannuation is a good vehicle for this, but it may be appropriate to supplement this with other life protection insurances.

When you obtain finance, it is on the basis that your income can cover your expenses and the debt repayments. As such, your insurance position becomes more and more important as you increase the size of these repayments relative to your income. Should your income reduce temporarily (illness, unable to work etc.) these repayments still need to be paid. This can come out of a couple of sources: existing stocks of savings, covered by an income insurance policy or a combination of the two.

Everyone’s insurance requirements will be different depending on your individual circumstances such as what type of income you earn, your profession, how is your income spread across you and your partner etc. Appropriate insurance is an important risk mitigation tool that is often neglected by property investors, so make sure you consider its role in allowing you to grow a sustainable portfolio.