Pm595 Risk Paper: Buying a Home

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PM595 RISK PAPER # 1

I/ TITLE: BUYING A NEW HOME

TABLE OF CONTENTS

INTRODUCTION………………………………………………………………………………. 3 RISKS IDENTIFICATION …………………………………………………………………….. 3 RISKS RANKING MATRIX ………...……………………………………………………… 5 RISKS MONITORING ……………….……………………………………………………… 6 CONCLUSION………………………………………………………………………………… 7 REFERENCES………………………………………………………………………………… 7

I/ INTRODUCTION
In this paper, I will discuss about a project that many people are familiar to: buying a new house. Few years ago, I moved to a new area and was trying to decide whether or not to purchase a new house, and if so, where should I buy it. I also considered if I should buy a preexisting new house or hire a builder for a new house. Every option had its own set of potential risks. If I continued to rent, was this really just throwing away money. If I purchased a house, could I afford it and was I buying the best house for me and my family? I approached it like any other project, with interviewing people, note collecting, collating, and interpreting the data. After reviewing my expenses and income and examining the tax advantages, I decided to buy a house but knowing that several risks may accompany my decisions, these risks rank from high probability – high risk to low probability – negligible risk

I/ RISKS IDENTIFICATION
There are many risks in buying a new house such as:
a/ Investment risks
In this rubric, I have to look at these investments risks:
The opportunity cost of investing in an alternative investment is very high because all the cash and future income stream is tied up into one asset a home, which may or may not appreciate. •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. b/ 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. c/ 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. d/ Warranty

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...
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