What Are The Risks of Real Estate InvestingPosted by: theinvestortoday / Category: Articles
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 wondered why the rich choose to live together in communities closed off from the outside world by iron gates? Yes it’s because they like nice things but it’s not the only reason. It’s partly because they are consciously aware that thoughts, ideas, and attitudes are real things that change how life unfolds for them. Most of society has not yet figured this out. This is why rich people protect themselves from everything associated with struggle and poverty because they know that attitudes are contagious.
It’s important to understand because most rich people know that true wealth is only made through learning to manage risk, not through avoiding it. Before I show you the risks of real estate, I want you to properly frame how different people see risk in general. People perceive risk in all different ways.
There are 5 types of people and each of them deals with risk in their own way
1. People who win through being comfortable
This person’s primary goal is to just go through life as comfortably and stress free as possible. Everything this person does is designed to support their pursuit of comfort. Often these people are content life long employees that don’t move up the ladder so to speak.
2. People who win by being liked
This person’s primary goal in life is to gain acceptance from everyone. They’d rather be liked than win. When you put someone like this in a leadership role, the business will usually suffer because they won’t be willing to 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. People who win by being right don’t tend to accept criticism and new ideas. They tend to reach a ceiling when it comes to money, career, and relationships. Because they can’t be honest with themselves, they don’t achieve any semblance of personal growth. Arguing with this person is pointless because they’ll always find a way to prove you wrong.
4. People who win by winning
This person is an achiever. Their primary motivation is to win. 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. This category describes all successful entrepreneurs and athletes. The downside is that some of them will go too far and compromise their integrity in order to win.
5. People who win by losing
This person wins by being a victim and by gaining sympathy from others. Just when things start to get better, they will sabotage themselves. 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 personality types am I?
Most likely, you see a little of yourself in each of these categories. Understand that if you’re going to avoid perceived risk, you’re developing a personality that is unlikely to ever get ahead. Now, let’s get to the good stuff. There are many risks that you may accept by not knowing how to properly invest in real estate.
Common real estate risks
Negative cash flow
If your investment fails to generate positive cash flow from the get go and you’re banking on appreciation, you have failed to manage risk. You wouldn’t buy a negative cash flow business so why would you buy real estate this way?
Getting quality tenants is a lot more work than a lot of people think it is. If you don’t know how to attract quality tenants, your rental property can be quickly overrun.
“Real estate always goes up in value,” is what they tell you and for the most part that is true. However, if you have a negative cash flow property, how long can you lose money for hoping that it will go up in value? What if it takes longer than you think?
Most investors don’t work maintenance and vacancy into their costs. You can easily be stung with a loss in appreciation through damage when you are anticipating the opposite.
Employment loss in area
As someone who has invested in the Michigan area, let me tell you how much this one little thing can cripple your investment. If you are depending on one main employer, you have failed to manage risk.
Underestimate management required
I’m amazed at the number of landlords who think that they can just throw a tenant into their property and just basically collect the check on the first of the month. This is especially true if you are real estate investing with a full time day job. 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
Nobody gets rich being a landlord. 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. Having only one option available to you is accepting a lot of risk.
Learn to manage risk in real estate
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 principle and you use the clauses in contracts that maximize your protection, you’ll never risk a single dollar of your own money. In fact, the only way to win by winning € in real estate is to understand how to avoid using your own capital. Our free course will show you how with the sign up below. Learning to manage risk in real estate is within your grasp.