University of San Jose-Recoletos
School of Business Management
Accountancy and Finance Department
MIDTERM OUTPUT
Risk Management Exercise
3138
Apostol
Aquino
Cabinas
Banguran
Gomez
Surposa
Real Estate SWOT Analysis
Strengths
Market Knowledge
Sphere of Influence
Marketing Expertise
Community Connections
Positive Online Reviews and
Testimonials
 Leverage-able Assets
 Industry Reputation or Leadership
Positions
 Positive Brand Identity and Local
Reputation





Weaknesses
Inexperience
Loss of a Valued Team Member
New to the Market or Profession
Small Sphere of Influence
Asset Losses
Negative Online Reviews
Negative Brand Identity and Local
Reputation
 Inefficiency, High Overhead, or Cost
Overruns







Opportunities
 Growth due to new industry or company
headquarters
 Influx of new residents
 Investment opportunities
 New markets opening up
 New commercial or industrial centers
 New transportation initiatives
 New home buyer incentives
 New investment incentives
 Demographic Shifts
 Lower Interest Rates
 Technological Innovations
Threats








Economic Downturn Predicted
Rising Interest Rates
Demographic Shifts
Retirement of a Valued Team Member or
Leader
Industry Shifts
Market Shifts
Inventory Shifts
Technological Innovations
Enterprise Risk Management Framework
Risk Identification
 The Risk Universe
Risk Evaluation




Impact Scale
Likelihood Scale
Risk Level Scale
Top 6 List
Risk Management
 Risk Matrix
 Risk Map
 Choosing the Strategy
Risk Monitoring
 The Risk Register
Risk Identification- Risk Universe
Legal Risk
Negative
Cash Flow
High
Vacancies
Environmental
Risk
Foreclosure
Risk
Leverage
Risk
Cash solvency
risk
Illiquidity
Risk
Leverage
Risk
Bad
Location
Structural
Risk
Social
Risk
Property
type risk
Credit
Risk
Natural
Disaster
Risk
Physical
Risk
AssetLevel Risk
Inflation
Risk
Market Risk
Idiosyncratic risk
Investment
Structure Risk
Risk Identification- Risk Universe
Legal Risk
Negative
Cash Flow
High
Vacancies
Environmental
Risk
Foreclosure
Risk
Leverage
Risk
Cash solvency
risk
Illiquidity
Risk
Bad
Location
Leverage
Risk
Structural
Risk
Social
Risk
Property
type risk
Credit
Risk
Natural
Disaster
Risk
Physical
Risk
AssetLevel Risk
Market Risks.
Inflation
Risk.
Idiosyncratic risk
Investment
Structure Risk
Risk Evaluation- Impact Scale
Objective
Market
Financial
Attribute
Rent Growth
Rate
Financial
Average days in
Market
Credit Score
Financial
Leverage ratio
Financial
Inflation rate
Operational
Legal Risk
tolerance
Event
Recession: Significant
decrease in rental growth
rate
Long period of closing a
deal.
A problematic tenant
delayed on paying the rent.
High number of investors
demand return
Erosion in purchasing power
and diluting real returns.
Doesn’t meet specific codes
HIGH
Below inflation
and negative
rental growth.
<56 days
LOW
Negative or Below
inflation rental
growth.
>45 days
300-600 credit
score
<80% leverage
MODERATE
Rent growth
positive but
declining
Between 46
to 56 days
650-699
credit score
75% leverage
<5% inflation
rate
High risk
tolerance
3%-4%
inflation rate
Medium risk
tolerance
>2% inflation rate
750-850 credit
score
>70% leverage
Low risk tolerance
Risk Evaluation- Likelihood Scale
Rating
Likelihood Scale
3
High
2
Moderate
1
Low
Probability
Below inflation and negative rental growth.
<56 days
300-600 credit score
<80% leverage
<5% inflation rate
High Risk Tolerance
Rent growth positive but declining
Between 46 to 56 days
650-699 credit score
75% leverage
3%-4% inflation rate
Medium Risk Tolerance
Negative or Below inflation rental growth.
>45 days
750-850 credit score
>70% leverage
>2% inflation rate
Low Risk Tolerance
Risk Evaluation- Chosen Risk
Risk
Risk
ID
01 Market Risk
Category
Market
02
Inflation Risk
Financial
03
Credit Risk
Financial
04
Leverage Risk
Financial
05
Illiquidity Risk
Financial
06
Legal Risk
Operationa
l
Description
Impact
likelihood
The real estate market is known
for its ups and downs with the
ever-changing
economic MODERATE MODERATE
conditions. Therefore, there is no
guarantee that you’ll be making a
profit when you decide to sell an
investment property.
Housing prices tend to rise in an
inflationary economy.
MODERATE MODERATE
The real estate developers or
buyer
cannot
make
timely
payment because of their various
HIGH
LOW
reasons which caused the risk to
the financial institutions and even
the entire financial system.
Project’s loans are under stress –
typically when its return on assets
isn’t enough to cover interest MODERATE MODERATE
payments – investors tend to lose
quickly and a lot.
Lack of public market, difficulty of
transacting and access to capital.
LOW
LOW
Failure to adopt specific codes
such as those for health and fire
safety or handicap accessibility
LOW
LOW
Risk Evaluation- Risk Matrix
3
I
M
p
A
C
T
03
01
02
04
2
1
06
05
1
2
LIKELIHOOD
3
Risk Management- Strategy Matrix
TRANSFER/
CONTINGENCY
AVOID
I
M
p
A
C
T
ACCEPT/
MONITOR
REDUCE/
MITIGATE
LIKELIHOOD
LIKELIHOOD
Risk Management- Strategy Matrix
03
I
M
p
A
C
T
04
02
01
05
06
LIKELIHOOD
LIKELIHOOD
Risk Monitoring- The Risk Register
Risk
Risk
ID
01 Market Risk
02
Inflation Risk
Category
Description
Market
The real estate market is known
for its ups and downs with the
ever-changing
economic
conditions. Therefore, there is
no guarantee that you’ll be
making a profit when you decide
to sell an investment property.
Financial
Impact
MODERAT
E
Housing prices tend to rise in an
inflationary economy.
MODERAT
E
03
04
Credit Risk
Leverage Risk
Financial
Financial
The real estate developers or
buyer cannot make timely
payment because of their
various reasons which caused
the risk to the financial
institutions and even the entire
financial system.
Project’s loans are under stress
HIGH
likelihood
Strategy
Action Plan
ACCEPT/
What is essential for combating
MONITOR;
these risks is constant diligence;
MODERATE CONTINGENCY always paying attention to key
indicators and business trends and
making financially wise decisions
based on the data that is available
is a very important part of any real
estate risk management process.
National and state employment
reports are often a very good
indicator of real estate demand and
fluctuations in the market.
>Invest in real estate investment
ACCEPT/
>trusts (REIT).
MODERATE CONTINGENCY >Join a real estate crowdfunding
platform.
>Invest in a private equity fund that
specializes in real estate
investments.
>Invest in a mutual fund that
focuses on the housing market.
Establishing mortgage insurance as
TRANSFER
protection to mortgage lenders
LOW
against a portion of the costs
related to homeowner mortgage
defaults or foreclosures.
Investing the premiums it receives
05
06
Illiquidity Risk
Legal Risk
Financial
Operationa
l
– typically when its return on
assets isn’t enough to cover
interest payments – investors
tend to lose quickly and a lot.
Lack of public market, difficulty
of transacting and access to
capital.
Failure to adopt specific codes
such as those for health and fire
safety or handicap accessibility
TRANSFER
MODERAT
E
MODERAT
E
MODERAT
E
from underwriting activities so as to
MODERATE
return a profit, and limiting its risk
exposure created by the policies
that it underwrites.
Always look towards the future and
CONTINGENCY evaluate and identify potential
MODERATE
trends in order to stay ahead of the
curve.
integrate plan goals with other
ACCEPT/
community objectives, implement
MODERATE MONITOR
mitigation actions through existing
mechanisms,
identify
potential
resources
Sources
https://goodfellowcoaching.com/real-estate-swot-analysis/
https://www.investopedia.com/articles/investing/122415/why-real-estate-risky-investment.asp#:~:text=Real%20estate%20investing
%20can%20be,of%20the%20real%20estate%20market.
https://origininvestments.com/2017/12/12/8-types-risk-every-real-estate-investor-know/
https://www.bricksandagent.com/blog/4-areas-you-can-minimise-risk-rental-property-management
https://www.forbes.com/sites/forbesrealestatecouncil/2020/08/05/assessing-three-types-of-risk-in-real-estate/?sh=455ef4626a30
https://daniels.du.edu/assets/Cycle-Monitor-20Q1.pdf
https://www.thebalance.com/how-long-does-it-take-to-sell-a-house-1799050
https://www.census.gov/housing/hvs/data/rates.html
https://www.fortunebuilders.com/how-important-is-your-credit-score-in-real-estate/
https://oxfordcompanies.com/blog/what-you-should-know-about-risk-assessment-and-real-estate/
https://www.raleighrealtyhomes.com/blog/why-is-location-so-important-in-real-estate.html
https://www.statista.com/statistics/256598/global-inflation-rate-compared-to-previous-year/
https://opentextbc.ca/projectmanagement/chapter/chapter-16-risk-management-planning-project-management/
https://www.embroker.com/blog/real-estate-risk-management/