Mitigate Risk and Anticipate the Worst
By JD Esajian on September 6, 2013
Despite what you see on the internet or TV, investing in real estate is difficult. You need to be knowledgeable in a lot of different areas to return a profit. There are a dozen things that can potentially go wrong at any time that can cause you to take a step back. These incidents can lower profit margins or even result in a loss. However, most new investors never think it will happen to them. They are too smart and too sharp to need to mitigate risk. These are the investors that won’t last five years in the business.
It is important to understand that there is risk involved with every deal. Even the safest investments offer some level of risk. Before you get involved in any deal, you need to map out what your objectives are and what some of the potential roadblocks may be. Leave no stone unturned and play things out to the worst possible scenario. What would you do if your tenant stops paying? What would you do if the market depreciates 10 percent? Can you handle paying for a large un-budgeted expense? The more prepared you are to mitigate risk, the better off you will be when it inevitably happens.
You can be on top of the world and think the business is a piece of cake if you close an easy deal or two. At some point along the way, you will face some adversity on a deal you are involved in. You will be forced to make a tough decision between two choices you would have never imagined. Instead of wishing your problems away, be proactive and face them head on. The quicker you can accept your mistakes and move on, the better off you will be. Even the best and most seasoned make mistakes from time to time. The best ones never make the same one twice.