As you’ve learned about minimizing risk in real estate, protecting your property is critical. What you might not know is that mitigating land acquisition risks is at the foundation of reducing real estate risk. If the land risk portion of your strategy isn’t solid, the whole plan could crumble. That’s why you should understand mitigating risk in land and property acquisitions.
How to Minimize Risk in Land and Property Acquisitions
Step 1: Identify potential risks
Step 2: Categorize the risks by severity
Step 3: Develop a plan
Step 4: Take action as needed
Step 5: Protect your investments with land acquisition risk insurance
Potential Land and Property Acquisition Risk
There are many unexpected circumstances that create land acquisition risk. Some common risks to plan for are depreciation and law changes. Land condition depreciation can put a halt to your real estate plans. When you invest in land, you most likely expect to build or sell. Either way, you intend to gain from the property. External or environmental factors could change that. If a widespread fire or storm happens, it could decrease the land value. Or it could be a natural occurrence like a sinkhole that hinders your original plans.
Changes in Land Ordinance
Government has certain laws to preserve different factors of land. Vegetation, oil, and other natural resources are a part of the land they work to protect. For instance, they could prohibit landowners from cutting historic trees. If you discover a land or water source on your land, the government may want to buy your land. Even if they don’t acquire the land, they may limit how you’re can use it.
Some main property acquisition risk factors are value reduction and market changes. Market changes are more predictable and manageable than value reduction. For example, location is one of the most important factors in real estate property investment. Outside circumstances could reduce the value of a perfect location. The city could build a landfill near that neighborhood or railroad track by the commercial property. That will decrease the demand you once had.
Risk Management Solutions
Your action plan will depend on the risks in step one of your risk management strategy. One thing that’s certain is where there’s risk, there’s a need for insurance. You can’t control natural disasters or weather that causes damage or value reduction. What you can do is protect your investment with property acquisition insurance. Once you’ve done your due diligence in evaluating your property, your next step is to get an insurance plan. Land acquisition insurance is an option too.
Your goal in mitigating risk is to reduce potential damage and preserve the value of your assets. Before taking steps to mitigate your acquisition risks, you need an industry expert on your team. Roman Galey helps business and individual clients with land and property acquisitions. He will assist you in identifying risks to reduce exposure and damage in the early stages. Before you invest, get help with property and land acquisition guidance as well as the proper risk strategies & insurance.