Oh, Those Scary Unknowns in Real Estate Investing

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I guess the scariest thing about investing is not knowing for sure. Many have written about the best ways to minimize risk and create a system whereby an investor has the best chance of succeeding and maximizing ROI, yet, there is always still risk.

Even the best planned investment can go sour. We can almost predict the market by analyzing trends, looking at demographics, buying right, using information gathered from valuable sources, yet, still there is risk. But risk is what creates the reward.

I don’t know of any investment with a high return without risk. The higher the risk the higher the reward — but, conversely, and this is the scary part, the greater the possible loss. An investor has to be prepared to lose. Managing risk is an important part of investing. Perhaps having a back-up plan, if this plan for this property doesn’t pan out, perhaps I can use the property for this, or, if this tenant fails I have investigated this possibility, or, if the building trend doesn’t carry forward in this area, I can sell the property for this use — each scenario will be different, but there should be an exit plan.

And there should be an acceptance of risk as the nature of investing. I have seen too many investors pass up good deals because they could never accept the risk. There has to be a point after all the rational planning has been completed where you go out on a limb. This is tough, especially in this market.

Yet, in this market there are good investment choices, because of the risk. Those who pull the trigger and guesstimate correctly will be rewarded handsomely, but many might lose. If there was no loss, everyone would invest.

This seems obvious, but I’m considering new investors, and I know how the excitement of investing can turn into stark fear once the realities of the possibility of losing sink in. So, I’m advising to get all that out of the way before you pump yourself up, and get advice — this is very important — get advice from someone with experience. It helps to work through the fear, on one hand, and on the other hand, it prepares you to know fully what to fear. Go in with your eyes open, your mind clear and your heart (stomach) strong.

Photo: Daniel Flower

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.