Calculated risks are key to property development and investment success: Jo Chivers

Jo ChiversMay 16, 2013

I was watching Deal or No Deal on telly yesterday afternoon whilst getting dinner ready for the family.

It’s a show where the player has a suitcase that contains an amount of money.  She then gets to choose cases to eliminate them in the hope she has the highest amount - which is $200k - in her case at the end. Along the way she can choose to take the bank deal offered or take a risk and continue to play. She may end up with $200k or with a much smaller sum.

I love the show and I’m always yelling ‘take the deal!’ as I vigorously rub the tips of my fingers together (this may sound weird if you haven’t seen the show).  My shouts at the TV get louder as the odds get slimmer.  I realised from playing this game even though I’m a property developer, I don’t like to take too much of a risk if it means losing money.

This threw me a bit as I always thought of myself as a risk-taker.  Then I worked out that I do like risk, but only calculated risk.

Calculated risk is defined by investorwords.com as:  “A risk associated with a certain course of action which has been given full consideration prior to making the decision to pursue that action. This is usually done when the potential gain is greater than any potential harm that might occur.”

The bit I like in this definition is ‘...when the potential gain is greater than any potential harm...’. Ah, so that’s why I like risk, it’s what I do everyday; assess the potential gains in a property deal.  Also, my job as property development project manager is to ‘give full consideration’ to a development and inform our clients before they ‘pursue action’.

As I watched the show I thought it was a bit like property developing.  If you hit the jackpot, there is good money to be made.  Making the decision on what case to chose could be somewhat like choosing a development site.

If you chose the wrong site, you can uncover a $50,000 problem and eliminate a lot of your profit.  If you chose the right site, you may create $200,000.

Property developing is about spotting potential and taking calculated risks. That’s why I love it.

Jo Chivers is director of Property Bloom, which manages property development.

Jo Chivers

Jo Chivers is director of Property Bloom, which manages property development.

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