Risk Paper 1
Pm595 Risk Paper: Buying a new house
Project Risk Management
Professor: James Reckon
By Magued Farag
May 24, 2014
TITLE: BUYING A NEW HOUSE
TABLE OF CONTENTS
RISKS RANKING MATRIX
RISKS MONITORING CONCLUSION
Whenever considering a major purchase in life one must carefully consider the risks associated with making these purchase decisions. These decisions should be treated as projects in such a way that proper planning, analysis, risk assessment and contingency should all be aspects of the purchase process whether formal or informal. In this paper, I will discuss about a project ...view middle of the document...
• The house is an undiversified investment, so if the market tanks as it has, game over.
• Knowing that we do not own our home, the bank does. So, I have to not think that I own my home until it is paid off 100% and I have money in the bank for taxes and repairs.
• A lot of cost connected to home ownership, such as repairs and insurance and fees and potential hazards I have not considered.
• If I lose my job, game over, this will put a lot of stress on me. •If land values fall, game over. My home is such a leveraged investment that a 10% drop in my home price could be 50,000 drop in price. This is huge.
• No flexibility in lifestyle change, I must stay in that home or go through the hassles of moving with all the cost connected to it. •Banks make money, I have to consider why, because I’m paying a rate of interest, this means on a long term mortgage after all fees and cost are considered diversified I will pay twice the value of my home. So, I’m better off saving the money and investing it in a portfolio and paying in cash.
2. Real estate agent considerations when evaluation the risks of buying a home
• In my personal experience real estate agents lie, they see us as nothing more than a meal ticket. They are not our friend, they’re just thinking about the money they’re going to make on us.
• I could get ripped off and I know people personally who have.
3. Own or rent a home comparison
The risks of buying a home calculator will tell in dollars and cents but does not consider other factors such as job instability. It will compare the present value of costs and see the real risk of buying a home. What do I do? I am renting a flat in the city and will wait until I have the cash on hand to buy a house. This will make my life low stress, fun and reduce the risk of buying a home or really eliminate it.
Another major risk associated of buying a new house is warranty coverage, because the new house can begin to disintegrate soon after the buyer moves in, the roof can leak, the basement can flood after the first big rain, or the doors won't close. This shouldn't be a problem if I buy my house from a reputable developer, but not all developers are reputable, and I may not be sure about mine. Typically, the warranties cover workmanship and materials, plumbing, electrical, heating, and air conditioning systems, and major structural defects.
* RISKS RANKING MATRIX
To prioritize the risks, I will rate each risk on two dimensions (see the table below), likelihood of occurrence and impact to my project to buy my home if the risk were to occur.
The risk of own or rent comparison is identified as of minor impact and required no further action in this phase of the project. Moderate and major risks required more detailed analysis. The investment risks are identified as providing the greatest potential risks
* RISKS MONITORING