The best investment risks are calculated risks.
But how do you know what to do and what not to do when choosing your investment? Here are a couple of simple dos and don’ts to get you started!
1. DO: Learn from the past
The real estate market is constantly changing, but that doesn’t mean we can’t pay attention to patterns and use them to inform our decisions. The market cycles and variables of today are similar to ones from the past. For example, everything from the stock market to national banks rolling out easy access to capital presents quite a few similarities between now and the roaring twenties. Are you freaking out now? These similarities don’t necessarily mean the Great Depression is around the corner. The benefit we have today is we can see all of the variables that are different from the past and that may impact the future. Technology is a variable that sets us apart from the build-up to the last Depression. Technology has the potential to exacerbate or elongate a Depression, which can impact the calculated risks we choose to take.
2. DO: Pay attention to the big players
The biggest real estate players make the biggest waves, so pay attention to what they’re doing. Their decisions will impact the risk factors of your investment decisions. For example, CBRE (Coldwell Banker Robert Ellis) is the largest commercial real estate firm in the world. Their decisions influence several things, including REITs (Real Estate Investment Trusts), institutional capital, sovereign wealth funds, and so much more. All these factors impact the market and the deals you may or may not make. The key is to stay ahead of institutional capital. Today, institutional capital is mainly interested in larger commercial real estate deals rather than smaller deals – there’s a focus on macro instead of micro.
1. DON’T: Invest it all
Does this sound obvious to you? You would be surprised how many people take a real estate risk without a safety net. In your first couple of deals especially, make sure you have a safety net. You don’t want to find yourself in the negative right from the start. Once you have built up your experience and portfolio, it’s easier to make higher-risk investments that won’t completely devastate your portfolio. Don’t set yourself up for failure! Be very calculated in your initial risks.
2. DON’T: Forget to leverage your value
Life is all about give and take. If you’re only looking to take from an investment, you’re at greater risk, as you’re more exposed. Successful partnerships will help insulate your risk, and in order to make these partnerships, you must also add value. The reality is everyone needs something–even the most successful people in the industry. Sometimes, people cannot even see what they need. When you are able to add value to others by finding solutions, you’ll begin to see a difference in the type of partnerships you make and attract. To level up your partnerships, and therefore your calculated investment risks, don’t just leverage others’ resources and knowledge; allow others to leverage what you bring to the table too!
3. DON’T: Make emotional decisions
Taking calculated risks in real estate investing can be a rush, it can get emotional. I’ve seen this many times in myself and others. Don’t let emotions cause you to make mistakes or rash decisions. I’ve seen investors on a time crunch panic and throw their money somewhere that stretches them and causes them to overpay with no backups. Don’t be that guy! If you’re strapped for time and feeling the pressure, take a breath! There are always multiple solutions. Don’t be afraid to take a step back or ask for wisdom from others. Trust me–it’s always better to take a minute longer to make decisions rather than lose a couple hundred grand extra.
Taking risks is, well, risky, but there are ways to take calculated risks that set you and your investment up for success. Are you just starting out and want more tips on taking wise real estate investment risks? Check out part of my conversation with Steve on the Real Estate Disruptors here.
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