Your financial wealth is not determined solely by the amount of money you have in your savings account; the value of the assets you have accumulated over time is another factor. Many people believe that purchasing a home would be an important acquisition that would boost their net worth.

Owning a property can provide you with a physical sanctuary that will give you the peace of mind to excel in your other financial endeavours. Knowing that you and your family will always have a place to call home can also give you the impetus to work harder to protect this important legacy.

Whether you direct your money into the ownership of property, place funds in formal investment options, or invest your resources in operating your own business, it is important to consider all the possible challenges that could arise which could jeopardise the preservation of your wealth.

Reflecting on risk

When it comes to your property, key questions which will help you to determine the risks you may face include: What situations could bring about a decrease in the value of the property? How could you lose ownership of your property? What could cause the destruction of the entire property?

Visualise all the occurrences that could set in place a series of events that would have negative consequences for your property ownership. This is not an exercise in pessimism; you are actually taking preventative action by being proactive about the risks that could endanger your property.

You want to identify the breaches related to the protection of your property and find ways to secure these vulnerable areas. Ask yourself, “Could I do something in advance to prevent an undesirable event from happening, or to allow me to recover from a negative incident as soon as possible?”

Identifying property risks

One way in which your property value can decline is by the lack of physical maintenance. Outdated fixtures, cracks in the walls and a dilapidated roof can have a negative impact on your investment. Worn-out electrical equipment or improperly wired electrical circuits can also present fire hazards.

There is also a possibility that your neighbourhood could face a general decline, which would affect the desirability of the location to potential buyers and lower the value of your property. Even if you have the best house in the area, if no one wants to live there, you may not even be able to sell it.

If you have a mortgage on the property, you could lose your investment to foreclosure proceedings if you are unable to manage the monthly payments. There is also the risk of total devastation of your property if there is a severe natural disaster such as a hurricane, flood or earthquake.

Managing preventable risks

Keep your property value intact by doing repairs and upgrades on a timely basis. Estimate an annual amount for ongoing maintenance, and save a little each month for this purpose. If you have a mortgage, make it a budget priority and discuss payment difficulties with your lending institution.

If you live in a community, it’s wise to get to know your neighbours. Be on the alert for unusual events that could indicate illegal activities are taking place. Institute a neighbourhood watch or participate in communal security measures that could help to maintain the viability of your area.

You could also invest in security systems to protect your property. Depending on the affordability, you can mount fire extinguishers and smoke alarms, install grilles at all the entrances, buy a basic monitoring service with a security firm, or even establish a full-blown fortress at your property.

Preparing for major losses

While doing ongoing repairs and establishing safety measures are smart strategies, your property could suffer significant damage in the event of a major disaster. Could your income handle this, or would you have sufficient savings to deal with renovation costs and restore your property value?

For adequate protection, you should buy insurance to cover the full replacement cost. Insuring your household contents as well won’t increase the overall premium significantly. Although insurance is a major expense, could you afford to lose the property that you have worked hard to acquire?

Be aware that if you choose to insure your property for less than the current market value, in the event of a total loss, you may only receive a percentage of your insurance value. It is advisable to discuss your needs and options with an experienced general insurance advisor.

You don’t need to become paranoid about the possible risks to your property. Once you have identified the problems that could occur and established contingency plans to mitigate these risks, then set your mind at ease and enjoy all the benefits of property ownership.

Copyright © 2015 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, May 7, 2015.

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl