We are at risk no matter where we are or what we do. Even simple things like getting out of bed, making yourself breakfast, or crossing the street.
I regularly get asked by many investors how to completely avoid risk.
I can feel their disappointment when I tell them it’s impossible, as there is no way of completely avoiding risk. One thing you can do is minimize your risk by having certain measures and precautions in place.
There are three types of risks that I regularly see many investors expose themselves to.
3 Types of Risks Investors Regularly Take
1. The Blind Risk
This is the riskiest of them all for any investor to undertake.
Scenario: You put a blindfold on, and you cross a very, very busy road. The likelihood of getting hit by a car is extremely high. In my opinion, this is a very dangerous risk that is not worth taking.
A few examples of this “Blind Risk” translated into real estate terms could be an investor buying a property without establishing trust or relationships with key individuals who can serve as your eyes and ears on the ground. Another example would be project managing a renovation from afar or trying to self manage the tenants.
2. The Conscious Risk
This is the “dipping your toe in water before jumping in” risk.
Scenario: You take the blindfold off, and you look left and right before crossing the road. You will still be at risk of getting hit by a car, but because you have made yourself aware of the surroundings, your risk is now minimized.
Related: What Property Owners and Managers Need to Know about Risk Management
A few examples of this “Conscious Risk” in real estate terms could be an investor conducting more due diligence on the people that he is looking at working with, rather than the stats and demographics of a particular area. Another example would be spending enough time building trust and relationships with the right property management and contractor/maintenance crew that will look after your investment.
3. The “Cautious” Risk
Don’t confuse this risk with procrastination or looking at every micro detail.
Scenario: The blindfold has been off for a while; in the past you attempted to cross the road and almost got hit by a car. Now, you decide to look left and right (twice), up and down, AND you turn around to look behind you before crossing. By being cautious in this way, you have significantly reduced your risk.
A few examples of this “Cautious Risk” in real estate terms could be an investor who has already accustomed himself with an area and people on the ground, but is not willing to conduct any business with these individuals for at least 9-12 months. You want to make sure that whoever you are entrusting with your hard earned money will always have your best interests at heart and is happy to guide you throughout the process.
Related: A Controversial Look at Debt, Risk, and My Quest to Make $100,000 Through Leverage
As the saying goes, “All good things take time,” and by being patient and cautious, you will definitely find out who is in it for the long haul or just out to make a quick penny.
Fear and stepping out of your comfort zone are some of the most common obstacles that prevent many investors from becoming successful and achieving their desired goals. They say that greatness lies at one’s breaking point, and the tipping point arrives when you’re just about to give up.
In the end, it is up to you to figure out what level and type of risk you are most comfortable with, but please keep in mind that without risk, there is no reward.
Don’t give up, be patient, pay your dues, and your time will come.
One of my all time favorite quotes is: “Risk is your best friend, while fear is your worst enemy.”
What do you think? Does risk scare you, or do you embrace it in your investing life? What kinds of risks have you taken?
Leave your thoughts and stories below!
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