Is Your Property Risk Appetite Different to your Partner’s?

Whether the property plan is a home or an investment purchase, most couples are not completely aligned. In fact, sometimes couples are so misaligned that issues can strike.

Whether it be fear of debt, a disbelief in property as the most suitable asset class to tackle at the time, anxiety around the proposed price tag or concern about making a massive financial mistake, we often find that couples not only come to us to seek unbiased advice but to help them ‘convince’ their risk-averse partner to agree to purchase.

Not only is this the wrong approach, but it glosses over what the basis for trepidation might be.

It may sound surprising but the percentage of couples who share the same fundamental views about property and have a similar risk appetite is actually far less than 50%. Couples often find a way to compromise on their differences of opinion when determining what to spend, where to shop and what dwelling types to consider, but there are many out there who are stuck in their tracks, unable to move forward because they aren’t able to find a common ground in the investing partnership. 

The danger is that one party could resent the other for blocking their plans, or the other party could resent their headstrong partner if and when issues arise with the property they were talked into purchasing.

Even small things like maintenance issues cropping up can distress a partner who didn’t want the property in the first place.

We meet couples all the time who are at a crossroad with one partner keen to move forward and the other putting a foot on the brake. Rather than tell the risk-averse party the virtues of property investment, we step through their reasons for concern and isolate the barriers to investing in property. We find that the main reasons for misalignment usually fall into one of the following four categories:

• Fear that their partner is so headstrong that the purchase effort will be expeditious and the property will be bought without them having enough of a chance to have a genuine say
• They fear that their partner has less of a grip on their available cashflow and ability to fund the property than they think they do
• They have come from a risk averse upbringing where homes should be paid down in full before other properties are purchased and they feel that utilising any equity in the home is ‘setting them back’, or ‘putting the family home at risk’
• They fear that the ongoing monthly cashflow contribution required to hold the property long term is greater than they are willing to sacrifice and could adversely impact their overall happiness
• They fear that the property could be a ‘lemon’ and lose value, placing their future financial position behind the current one.

We have dealt with fear head-on, and many times over the years. There always has to be compromise for any joint purchase effort to work smoothly and the compromise often needs to come from the very person who feels that it is their job to drive the purchase strategy.

The compromise for a headstrong investor might be to strip back some of the risk. Certainly this means that less reward is on offer, but baby steps can make the difference between a successful property investment strategy and a stalemate.

Examples of compromise can include a softer capital growth expectation and a cashflow neutral target, or a lesser price-point. It may also involve including the risk-averse person’s input during inspections and shortlisting processes.

The most important thing that a supportive partner can offer the fearful party is some control.

Not surprisingly, often the risk-averse partner agrees to a stepped up level of assertiveness with their purchase strategy once they have experienced a property purchase that represents less risk.

We have had several acquisition assignments that involved a more gentle foray into property investing. Some have resulted in a happy outcome once the actual cashflows were proven to match our theoretical cashflow calculations. One couple purchased their first property in Ballarat with the mantra of “don’t let this purchase impact our family spending.” We aimed as close to cashflow neutral as we could and at tax time I received the happy call to advise that the property had delivered a positive return post-tax of $191 for the financial year. Unsurprisingly his partner was comfortable with a subsequent purchase that year.

Being prepared to talk about the risks, the downside and the worst-case-scenario sometimes helps too. For many fearful investors, just having a contingency plan is enough to offset the worry of a bad decision.

No property is perfect, and all properties throw out challenges at some stage or another (from tenant-issues to maintenance issues to even just finance challenges). Any investor who expects that their journey will be seamless and every day as a landlord will be a breeze is kidding themselves. When this is accepted, anticipated and dealt with in accordance with the overall plan, the long term reward associated with property investing becomes a whole lot clearer and the bumps in the investment journey are much easier to face… together.