What Are The Risks Of Real Estate Investing?
Life is full of risks, so it’s just being honest when I say that the best strategy is to learn to manage them. Have you ever considered why rich people barricade themselves off in gated communities? It’s more than just the fact that they like “nice things”. It’s also because they are consciously awkened to the fact that thoughts, ideas, and attitudes are real things that shapes their lives. The point still eludes the bulk of society. Attitudes are contagious and that’s why rich people avoid the mentality of struggle and poverty like the plague.
You can’t avoid risk in real estate investing, you can only control it. Before we talk about real estate investing risks, understand that the perception of risk is different in the eye of the beholder. Risk is perceived differently by different people. So before we consider the risks of investing in real estate, we need to look at the different personality types.
There are five types of characters and they each consider risk differently
1. People who win by achieving comfort
Attaining comfort and avoiding stress is the aim of this person. The pursuit of comfort is everything for this person. Often these people are content life long employees that don’t “move up the ladder” so to speak.
2. People who win by getting people to like them
This person’s primary goal in life is to gain acceptance from everyone. Winning is a distant second to being likable. This person will hinder a company when they manage because they can’t make tough decisions that upset someone.
3. People who win by being right
This person is usually an expert in a specific field like a professor or a lawyer. Criticism and new ideas don’t mesh well with people who need to right. They often hit the wall with career, money, relationships. Personal growth isn’t something they achieve because they aren’t typically honest with themselves. Arguing with this person is pointless because they’ll always find a way to “prove you wrong.”
4. People who win by winning
Achievement is the hallmark of this person. Winning motivates them. They are very competitive and will do whatever it takes to win. They’ll constantly push themselves to gain the edge they need. They usually only quit something to pursue a better opportunity. Top athletes and successful entrepreneurs follow this personality type. In the pursuit of the end, this person has a dark side which many compromise integrity.
5. People who win by losing
This person wins by being a victim and by gaining sympathy from others. They often experience self sabotage. Their lives are always filled with perpetual problems. They create circumstances and excuses that help them fulfill their victimization. “Your course won’t teach me anything new. I don’t have the money. This is just another scam. I’ll give it a try…”
Which one of these types am I?
Like me, you probably have aspects of all of these. Understand that you have a personality type that will never get ahead if you avoid perceived risk instead of learning to manage it. Now, let’s get to the good stuff with managing risk and properly taking advantage of free real estate investment resources. You accept the following risks if you don’t know how to properly manage them.
Common real estate risks
Negative cash flow
If you need appreciation to make money and you’re not properly cash flowing, you have failed to manage risk. Why would you buy real estate that loses money if you wouldn’t buy a stock that does?
Renting to the wrong tenants
It’s harder than people think to get quality tenants. If you don’t know how to attract quality tenants, your rental property can be quickly overrun.
No appreciation
“Real estate always goes up in value” is what they tell you and for the most part that is true. Appreciation can take a long time in some markets so what if you’re cash flowing in the wrong direction that whole time? What if it takes longer than you think?
Repairs
Most “investors” don’t work maintenance and vacancy into their costs. Damage can make you property depreciate in value when you are in dire need of it going up in value.
Market job loss
Like I experienced in Michigan, your investments can be crippled from this one thing. You aren’t properly managing risk if your appreciation is dependent upon one employer providing for the whole area.
Underestimate management required
Put a renter in and collect the check is actually the false idea that a lot of landlords get. Be prepared for a lot of ongoing physical management and risk if you do not some creative strategies that will help you leverage your time.
No exit strategy
Landlords aren’t rich. Top level investors have multiple creative exit strategies at their disposal for tough markets and most inexperienced investors have “buy and rent” only at their disposal. By having one option, risk levels are very high.
Real estate investing risk can be controlled
It sounds like a bit of a bold statement but the only risk in creative real estate investing is that you will waste your more precious resource, your time. How is it possible to avoid risking my money? The key to managing risk in real estate is to use the simply principle of only buy what you already have sold for a profit. If you follow that simple way of thinking and you use contracts that keep you protected, risk will not affect you. In truth[spin], the only way to “win by winning” [spin]in real estate is to understand how to invest without your own funds. You can manage your risk investing in real estate.
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