Final answer:
Financial risk in property investment is related to market-wide factors such as interest rates and economic conditions, whereas business risk pertains to individual property concerns like tenant management. Investors must weigh both the financial and non-financial returns against these risks to make informed investment decisions.
Step-by-step explanation:
When analyzing the difference between financial risk and business risk in property investment, each represents unique challenges and considerations for investors. Financial risk refers to the possibility of losing money on an investment due to factors that affect the entire financial market, such as interest rate changes, inflation, and recessions. On the other hand, business risk is associated with the specific uncertainties of the property business, like vacancies, tenant issues, and property management efficiency.
Investors in the financial market must also be aware that different types of financial assets carry varying levels of risk. For instance, investment in a house provides a financial return through rental payments or potential capital gains, but it also includes nonfinancial returns like personal usage of housing services. Ultimately, investors must consider both the expected rate of return and the level of risk when deciding where to allocate their financial capital.