In business it’s called de-risking. This is how it works.
There’s a strategy in business called de-risking, and it often makes fantastic returns.
So imagine there’s a business that delivers great returns, but no one wants to buy it because there’s too much risk for one reason or another.
If you want to sell it for good money, you don’t need to find a way for the business to make more money. You need to find a way to take some of the risk out of the equation.
If you can do that, you can make a great return.
You don’t see de-risking as a strategy that often in property (the saying is ‘safe as houses’ for a reason.) But sometimes you do and sometimes it pays off.
Take this recent sale in Kedron, Brisbane. It was great property in a great location, but it had some problems: graveyards and floods.
A five-bedroom, newly built family home with a pool on 683 square metres at 5 Bloxsom Street, Kedron, Queensland. Sold at auction for $2.2 million.
What was surprising about it? The house backs onto a cemetery. The property also experiences significant overland flow.
What’s overland flow? Overland flow is not an uncommon factor that we need to consider in Brisbane. It’s where you might have property at the bottom of a hill. In subtropical climates, we do get some heavy rain. The water’s got nowhere to go.
Often people will view these properties very harshly… Andrew had to build the home up. I had him insure the property and provide me with information about that policy and the premiums therein. We also shared highlights of the hydraulic engineering report, with the specifics of how the property might be impacted.
In Queensland we’ve had two floods in the last 14 years. We had a cyclone for the first time in decades in Brisbane. People are very conscious of weather events. But ultimately, all anyone wants to know is; “How will I be impacted? Will my insurance premium be expensive?” We provided evidence it won’t be.
The way home is built, you can be dry and high. And, God forbid, we do have another event, the water will wash away. The fence at the rear can be brought down, the water will wash away, and you’ll have a nice green lawn.
Do you see what they did there? The de-risked the property.
Everyone wants to buy into that suburb, but the flood risks are going to put people off. But they took the uncertainty out of it. They got insurance lined up before the sale. They had a strategy for the bottom fence.
With that in place, buyers knew what they were getting, and didn’t need to leave a buffer in their offer prices for any unexpected costs.
As major weather-events become a more common feature, I think we’re going to see more of this playing out.
If you can find a property burdened by uncertainty, and take some of the risk out, there are people will pay you for your trouble.
Expect to see more deals like this.
DB