Mitigating Risk, a point of view discussion
In a recent thread, one member asked the other member the following:
"I'm curious as to how you mitigate your risks? I totally understand using your own money has far less headaches than dealing with the banks or private lenders and gives you higher returns when things go right, but what about if things go wrong? I'm not saying you're wrong, clearly you have been very successful, but to me the risk mitigation factor alone necessitates having some kind of money partner."
Here is my take on this, the risk does not change for me if I use private lenders as no matter if it is my money or theirs, even in a loss situation, I am going to pay back that lender (or lenders) no matter what so taking on debt does nothing to mitigate my risk in that scenario. However, if I take on an equity partner that brings capital to the table, than surely they also share in the downside, thus, a portion of my risk is diversified between us.
Things can and do go wrong (ask me how I know that!) but for me, risk is mostly mitigated by proper due diligence and buying at the right price. If I lock a deal with a large enough spread to cover everything that can go wrong (in a rehab flip scenario, exit price drops, rehab estimate goes up, holding time is longer, etc), then I have mitigated most of my risk, regardless if I use my money or that of OPM (other people's money).
Please feel free to chime in.