How many times have you heard – Buying Real Estate with Nothing Down is risky? Let us examine the risk factor in nothing down deals:
Few Words About Insurance
I often write about the duality – the proverbial ying & yang that exists in life. Well, let me tell you – nothing is more of a duality than the concept insurance. I’ve never met an investor who likes insurance or likes paying the bill for that insurance, and yet everyone does. Now, how is that…?
Let us understand the premise behind insurance. In most basic terms, the function of insurance is to protect you from a catastrophic loss – a loss of such magnitude that expense associated with it would send you into bankruptcy. For instance, you don’t need auto insurance most of the time, but on a day when you have an accident you really do because you’ve caused $200,000 worth of damage and have no means with which to pay up. Same goes for health insurance, fire insurance, flood insurance, etc.
So – all that we are doing by purchasing any given insurance policy is we are transferring the risk of an over-seized expense some time in future away from ourselves and onto an insurer. The more the actuarial risk of such an event, the more we can expect to pay in premiums. That’s the name of the game – transfer the risk…
It seems to me that real estate is no different from any other circumstance in life in that if we can, as much as we can, it is desirable to transfer the risk of a future loss away from ourselves. Let’s agree to define the ultimate loss in real estate as ..