Risks in Investment Case Study:
838 Marion Road
Disclaimer: This case study is intended for educational purposes only. This article is not in any way is a recommendation or promotion on our side to sell this investment.
Thorough due diligence by your side will be needed before making the decision of commitment into any investment mentioned here.
In the last article, we talked about the key features of 838 Marion Road, the promising crucial factors where 838 Marion success lies in.
However, we all have to keep in mind that every investment comes with underlying risk(s).
Today, let’s us continue with our case study by assessing different risks that typically come with a property trust. To assess the risks, we must first know the types of risk that investment generally carries.
The first one is the market risks which is the risks that resulted from declining value because of the economic situation that affects the whole market, in this case, the property market. Any changes in investment and property market will subsequently affect the value of 838 Marion Road Trust.
To counter this, the Trust research and analyse to form a view on these matters as
best it can and will look to optimize the time at which it buys and sells its property.
Property is usually considered illiquid (not easily convertible into cash) and at some point, you might face the risk of not being able to sell your investment at a fair price and get your money when you want to. The illiquid characteristic of the units in the Trust is a result of the fact that it is unlikely there will be a secondary market of the units.
In the Trust, the investors should consider the possibilities of facing difficulties selling the
Property at the end of the term. An investment in the Trust should be considered long-term
Currency & Foreign Risks
838 Marion Trust’s investment will be denominated in Australian dollars and therefore the weakening of a country’s currency relative to the Australian dollar will negatively affect the value of the Trust from the perspective of an international investor.
Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, central bank policy and political developments.
The foreign risk is the risk of loss when investing in foreign countries. When you buy foreign investments, for example, the shares of companies in emerging markets, you face risks that do not exist in your home country, for example, the risk of nationalisation.
When the lease comes or leases come to an end or a lease prematurely terminates, the Trustee would need to find a new tenant which it may not be able to do or it may take some time to find a new tenant. Where a new tenant has to be found as a result of a tenant vacancy, the income of the Trust will decrease, and the value of the Property may be negatively affected which has a flow-on effect to the overall value of and returns from the Trust.
In attempting to find a new tenant, Red Wealth may have to pay commissions to estate agents or provide incentives to attract tenants. All of these expenses will be met by the Trust and may affect its performance.
Inflation and interest rate fluctuations may affect the income and resale value of the
property and therefore the value of the trust’s investment in the property. And increases in interest rates during the term of the Trust may lead to lower returns for Investors.
There are a few factors that are not listed above that perhaps, carry minor risks. In all and all, 838 Marion Road Trust carries low, perhaps minimal risk that can serve as a long-term investment. This is found after a careful examination and assessment of the potential risks that could occur.
For example, the Trust has ensured that they will take necessary actions after evaluating the possible risk that may occur due to the market situation. Also, to avoid losing income after a lease ends with the tenants, the Trust would then hire estate agents or provide incentives to attract tenants.
However, the general rule of thumb is that it’s crucial for you to carefully assess the existence of each kind of risk, and its intensity in whichever investment opportunity you may consider.
However, do not let the presence of these risks paralyse you into inaction. Please remember that there is always some risk or the other in every investment option.
What is important is to clearly grasp the nature and degree of risk present in a particular case and whether it is a risk you can afford to, are willing to, and ready to take.
Success skill in managing your investments lies in achieving the right balance between risks and returns.