How Investing In The Construction Industry Can Affect Your Portfolio
How Investing In The Construction Industry Can Affect Your Portfolio – by Chrissy Davidson
Construction in New Zealand is hotting up and with the Christchurch rebuild sitting at a massive $40 billion alone, the industry is experiencing quite the boom. For investors, this is a time to dip those toes in the water as the potential for return can be significantly higher. With this higher potential for return though, the risk also increases. Discover ways to invest in the construction industry that will have a positive effect on your investment portfolio.
Understanding The Volatility Of The Markets
One of the toughest industries to predict is the construction industry, as there are a number of factors that contribute to it. The construction industry is often a marker for other industries and when it takes a knock, the rest of the industries will almost certainly follow. For those who are invested in the construction industry, one of the biggest considerations is the level of risk they take on due to the volatility of the markets. For instance, in a good market that experiences growth, someone who has invested $100,000in a $500,000 property, will benefit from the full $500,000 in a good economy. Should this go down, however, not only will the investor stand to lose on the equity in the property, but also whole or part of their initial investment.
Investigate All Possibilities To Ensure Healthy Cash Flow
Poor accounting is one of the top five reasons why construction sites fail and for an investor, this could quickly bleed them dry if the finances aren’t carefully accounted for at all times. Although upfront capital is a given requirement for a job site to start off, it’s important that investors keep an eye on ongoing cash to ensure they stay on top of the cash flow. Investors need to stay on their toes to ensure their money is put to good use and everything from a proper production flow to the management of overtime and sick leave will come into play here. Sub-contractors, weather conditions, theft, and even vandalism can cause job site delays and an increase in expenses.
It’s also critical that at this stage in the game when they might have to approach financial institutions or joint venture capitalists for additional finance, that they do so with caution. Investors who are raising capital in their personal capacities and relying on their existing mortgages for equity, should keep an eye out for legitimate offers from financial institutions to ensure they have the right loan type that meets their needs. If not, not only will this potentially cause the investment to fail, but also cause problems for the investor on a personal level.
Taking The Time To Allow The Investment To Play Out
The higher the risk in an investment, the more important it is for the investor to have time to ride it out. This is because high-risk investments often have to rely on time to see them through and some a lot more than investors can afford. Just two years ago the construction industry in New Zealand was experiencing a massive slump and even Christchurch, the home of massive infrastructure investments this year, had to face certain failure in a number of developments. Investors who were able to ride out the storms and not have to pack it all in when things went south are now starting to see progress and the beginnings of a possible return on their investments.
Investing in the construction industry requires experience and an investor who is able to afford the risk should there be a slump in the market. The reward, if successful, can be exponential.