One of the questions we get a lot, especially from new real estate investors is, “How do I deal with risk?” I wish real estate investing were a sure thing, but there really is no such thing as a “sure thing.” There is always the possibility of losing money just like there is always a possibility of making money. It’s all about dealing with risk. Here are some tips for handling risk in your investments.
Your comfort level.
Know how much risk you are comfortable with. Some people are very comfortable with a high level of risk. Betting the farm is no big deal for them because they have been through ups and downs and are used to a certain amount of risk. Other people go into shock at the loss of just a few dollars, and these people spend sleepless nights tossing and turning with doubt and fear. You need to decide which of these people you are and invest accordingly.
If you are going to get serious about your real estate investments, do not make the mistake of avoiding risk. As the saying goes, fortune favors the bold. However, being bold does not mean being stupid. You should always do your best to minimize rather than avoid risk. Risk will always be there, but there are things you can do to reduce it.
Back up plan.
Having a backup plan, diversifying your investments, and having a partner or backer are ways you can mitigate the risk. If you know a loss will not prevent you from buying food next week, you won’t be as affected by risk. If you have more than one investment, assuming you have made wise decisions, you can double down and reduce risk. Having someone who also has skin in the game can split the responsibility and the loss if it occurs, again reducing the risk. All of this should be part of your overall investment plan.
Another thing you should consider is your self-esteem. Being able to stay calm and confident during the ups and downs of real estate investment depends on your confidence in yourself and your abilities. Investment isn’t simply about money or information, it’s about your ability to gather that information while having faith enough to use that information to make strong decisions. Indecision based on fear will cause you to miss opportunities and make mistakes.
It’s also important to note that people’s fear of risk can also be an asset for you. Many people will hesitate on a good deal because they fear the risk. But if you can handle the risk, and have done your best to mitigate the risk, you can be first to the table and gain leverage that risk-averse people just don’t get. At the core of every real estate investment is risk. Get comfortable with it. Make it your friend and your partner.
New Funding Resources LLC is a private lender in the Washington DC area. We provide fast and flexible financing to help real estate investors purchase, rehab and sell an investment property in Maryland, DC, and Virginia. Apply today or call us 240.436.2340 .