Life is full of risks everywhere. But why do so many of us fear an airplane crash when it’s far more dangerous to do a dull morning highway outing (your chances of dying are far more likely in an auto than the very unusual chance of perishing in a plane crash…even if you do crash, studies show that most people actually survive). Not to be morbid but the subject of risk is on the minds of many when it comes to real estate investments. Or maybe it is on the minds of the many who send me solicitations asking for money to learn how to get rich in real estate.
Many of these ads claim to be “risk-free,” which is an immediate hint or bludgeon to convince you to turn the page and go on.
If you realize there is risk in everything, including real estate, there are ways to deal with it.
Embrace the risk.
How to do that?
First, gather all the information you can about a planned investment. Pro and con. Do research until you are sick of the subject.
By that time, you know or at least have some idea of the odds of success…or failure.
Second, have a fallback plan.
If your planned investment, say, in a duplex (hey, not original but what a good idea to have your neighbor pay your rent while your property appreciate so that you can sell at a profit down the road), consider what might happen if the rental market gets saturated. This is hard to predict, but if you have a plan, you are prepared (sorry for the cliché). In tough times you might spend more on advertising or convert your property to a specific (and desirable to tenant) niche or you might even sell out at perhaps a smaller profit than you expected.
Thirdly, if at all possible, diversify your real estate holdings so that if one market slips, you have other properties. Yes, I know it’s easy to say this and not always easy to do, but make it a goal and that is a good start. This is what the big companies and investors do, and they are not always wrong.
The point here is that you are actually learning or finding ways to minimize your risk, something you can’t do while riding in an airplane and probably not in a car (though seat belts do help).
One of the best things about being a former newspaperman is that you learn to be skeptical. Not cynical, hopefully, but skeptical. You learn to think critically and logically.
The other day I tried to impress a young friend by repeating what I thought was a trite bur true cliché: “Trust your mom but cut the cards.”
The friend, a 20-something newspaperman himself, asked me what that meant.
God help him.