April 28, 2023
Read Time: 5 minutes
As an investor, one of the most important things you can do is mitigate the risk of your investment.
Adding time is a great way to de-risk an investment. You can buy something for less than what it’s worth. Is the purchase price variable or is it fixed?
There are a lot of ways for you to balance the risk profile. But we’ve broken it down into 3 easy steps.
These are the “It” factors for mitigating risk in your real estate investments.
Do It A Lot
The more deals you do, the more practice you have… the less risk there is for human error.
Repetition improves skill, and real estate investing is a skill that can be difficult to master.
The idea is that every time you finish a deal, you’ve learned something new. Giving you knowledge that you’re able to take into your next deal.
And the more hurdles you face, the more you will have in your arsenal in the future.
This is why we are fans of hyperfocusing on a single asset class. When you spread yourself thin, and over-diversify, you’re not allowing yourself to absorb as much of the experience.
Which leads to the next “It” factor.
Do It At Home
Invest where you know, and play in your home court.
Or at the very least, partner with someone who has specialized knowledge about that particular area.
There are two important factors here. The first of which is simple.
If you are going to invest in an area in which you know NOTHING about, you are assuming a great amount of risk. It could turn out great, it could turn out horrible… you don’t want to be blindly throwing darts at a map.
Either invest in your own backyard, or find a partner with a better backyard.
The second factor to this is more relevant now than ever. There are so many emerging companies and technologies that allow for people to invest in assets from anywhere.
This means the competition for exceptional returns is higher than ever. And to beat that competition you need a unique advantage.
Local knowledge.
So instead of investing in an index fund, that plays the entire market average and gets you average returns as a result… narrow your investment to where you, or a partner, has a unique advantage.
And the third “It” factor…
Do It With A Partner
If you’ve listened to our podcast, you all know that we are big proponents of partnering with people when taking down a deal.
You can do it all yourself… but that makes it a lot harder… and a lot more risky.
Someone out there is going to have a skillset that compliments yours. So why not do it together? One plus one in a great partnership equals far more than just two.
Another way that a partnership decreases risk is by simply adding another head in the room. We get this question a lot from prospective investors… what happens if one of you “gets hit by a bus”.
As silly as that sounds, it’s absolutely something you need to think about. Having more than one person operating the business is a great contingency plan.
To Sum It Up
Do it a lot. Do it at home. And do it with a partner.
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