{"id":135610,"date":"2021-03-24T13:30:24","date_gmt":"2021-03-24T19:30:24","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=135610"},"modified":"2024-01-27T11:32:33","modified_gmt":"2024-01-27T18:32:33","slug":"understanding-investment-risks","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/understanding-investment-risks","title":{"rendered":"Don&#8217;t Invest Without Understanding the Risks \u2014\u00a0Here&#8217;s What You Need to Know"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC2777448206&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n\n<p>\u201cStep right up! Come one, come all! Today we\u2019re offering an opportunity to quadruple your money!\u201d<\/p>\n\n\n\n<p>Would you take this deal?<\/p>\n\n\n\n<p>After all, who wouldn\u2019t want a 300% profit on their investment?<\/p>\n\n\n\n<p>So, would you?<\/p>\n\n\n\n<p>The correct answer is&#8230; it depends.<\/p>\n\n\n\n<p>It depends? On what?<\/p>\n\n\n\n<p>I\u2019m glad you asked. <strong>It depends on the risk involved<\/strong>. And the holding period.<\/p>\n\n\n\n  <div id=\"posts_lists-block_606336a814870\" class=\"  my-10\">\n    <div class=\"\">\n      <!-- Column One -->\n      <div>\n                  <h2 class=\"mt-0 mb-1 js-toc-ignore\">\n            Learn more about analyzing investments          <\/h2>  \n                  \n                  <div class=\"mt-1 mb-0 text-sm mb-2 excerpt\">\n            <span data-sheets-value=\"{\" data-sheets-userformat=\"{\">Analyze any real estate deal like the pros.<\/span>          <\/div>\n        \n                  <a href=\"https:\/\/www.biggerpockets.com\/blog\/category\/buying-selling\/deal-analysis\" class=\"no-underline text-themeBlue-medium hover:underline uppercase font-semibold text-sm\" target=\"_blank\">Finding Deals<\/a>\n        \n        <div class=\"grid grid-cols-1 gap-y-4 lg:gap-y-7 mt-5\">\n          \n<article \n\tid=\"post-185916\" \n\tclass=\"content-card mb-0 flex flex-col  post-185916 post type-post status-publish format-standard has-post-thumbnail hentry category-deal-analysis\">\n\n\t<header class=\"entry-header\">\t\t\t\n\t\t<!-- Image -->\n        \t\t\t<a class=\"post-thumbnail\" href=\"https:\/\/www.biggerpockets.com\/blog\/3-markets-where-you-can-find-good-deals-in-2026\" target=\"_blank\" aria-hidden=\"true\" tabindex=\"-1\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"340\" height=\"225\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/11\/shaking-on-deal-340x225.jpg\" class=\"size-card w-full  m-0 aspect-[68\/45] object-scale-down wp-post-image\" alt=\"3 Markets Where You Can Find Good Deals in 2026\" title=\"\">\t\t\t<\/a>\n\t\t        \n\n\t\t<!-- Content Wrapper -->\n\t\t<div class=\"py-4 \">\t\n                            <div class=\"flex gap-4 justify-between items-center\">\n                    <!-- Category  -->\n                                            <a href=\"https:\/\/www.biggerpockets.com\/blog\/category\/buying-selling\/deal-analysis\" class=\"transition-colors bg-themeBlue\/20 text-themeBlue-medium hover:bg-themeBlue hover:text-white px-2 py-1 mb-2 inline-block rounded-sm no-underline text-sm\" target=\"_blank\">Finding Deals<\/a>\n                    \n                                            <span class=\"text-sm text-gray-500 hidden lg:inline-block\">3 min read<\/span>\n                                    <\/div>\n            \n           <div class=\"flex gap-3 items-center my-2 flex-nowrap text-base\">\n                <!-- Avatar and Author Name -->\n                <img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/cropped-garrettbrown-150x150.jpeg\" class=\"w-8 h-8 object-cover my-0 inline-block rounded-full\" alt=\"\" title=\"\"><span class='leading-snug text-slate-500 flex items-center'><span class='hidden whitespace-nowrap sm:inline-block md:hidden lg:inline-block pr-1'><span class='posted-on'><time class=\"entry-date published\" datetime=\"2025-12-03T11:34:32-07:00\">Dec 03, 2025<\/time><time class=\"updated\" datetime=\"2025-12-11T08:51:21-07:00\">Dec 11, 2025<\/time><\/span><\/span>&nbsp;<a href=\"https:\/\/www.biggerpockets.com\/blog\/contributors\/garrettbrown\" class=\"no-underline line-clamp-1\" target=\"_blank\">Garrett Brown<\/a><\/span>            <\/div>\n\n            <!-- Post title -->\n\t\t\t<h2 class=\"entry-title js-toc-ignore mt-4 mb-0 text-xl leading-snug text-left\">\n\t\t\t\t<a href=\"https:\/\/www.biggerpockets.com\/blog\/3-markets-where-you-can-find-good-deals-in-2026\" rel=\"bookmark\" class=\"whitespace-normal no-underline font-bold  text-slate visited:text-slate hover:text-themeBlue\" target=\"_blank\">\n\t\t\t\t\t3 Markets Where You Can Find Good Deals in 2026\t\t\t\t<\/a>\n\t\t\t<\/h2>\n\t\t\t\n                        <p class=\"text-lg font-normal mt-3 text-slate-500 mb-1 line-clamp-3\">This article is presented by Lennar Investor Marketplace. Remember when buying a house meant sprinting to a showing, writing an offer in the driveway, and praying the seller liked your&hellip;<\/p>\n\t\t<\/div>\n\t<\/header>\n     <footer class=\"flex justify-between mt-auto\">\n        <!-- Comment Count -->\n        \t\t<span class='flex items-center space-x-2 text-sm' x-cloak x-data='commentCount()' :class=\"parseFloat(commentCount) < 1 || commentCount == '' ? 'hidden' : 'flex'\">\n\t\t\n            <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-5 w-5 text-slate text-opacity-50\" fill=\"none\" viewBox=\"0 0 24 24\" stroke=\"currentColor\">\n                <path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M17 8h2a2 2 0 012 2v6a2 2 0 01-2 2h-2v4l-4-4H9a1.994 1.994 0 01-1.414-.586m0 0L11 14h4a2 2 0 002-2V6a2 2 0 00-2-2H5a2 2 0 00-2 2v6a2 2 0 002 2h2v4l.586-.586z\" \/>\n            <\/svg>\n\n            <span x-ref=\"comment_count\" class=\"disqus-comment-count text-slate text-opacity-80\" data-disqus-identifier=\"185916\">\n\t\t\t\t\t\t\t<\/span>\n        <\/span>\n\t    <\/footer>\n<\/article><!-- #post-185916 -->\n<article \n\tid=\"post-185498\" \n\tclass=\"content-card mb-0 flex flex-col  post-185498 post type-post status-publish format-standard hentry category-deal-analysis\">\n\n\t<header class=\"entry-header\">\t\t\t\n\t\t<!-- Image -->\n        \t\t\t<a class=\"post-thumbnail\" href=\"https:\/\/www.biggerpockets.com\/blog\/20-ways-to-fnd-real-estate-deals-in-2026\" target=\"_blank\" aria-hidden=\"true\" tabindex=\"-1\">\n\t\t\t\t\t\t\t<\/a>\n\t\t        \n\n\t\t<!-- Content Wrapper -->\n\t\t<div class=\"py-4 \">\t\n                            <div class=\"flex gap-4 justify-between items-center\">\n                    <!-- Category  -->\n                                            <a href=\"https:\/\/www.biggerpockets.com\/blog\/category\/buying-selling\/deal-analysis\" class=\"transition-colors bg-themeBlue\/20 text-themeBlue-medium hover:bg-themeBlue hover:text-white px-2 py-1 mb-2 inline-block rounded-sm no-underline text-sm\" target=\"_blank\">Finding Deals<\/a>\n                    \n                                            <span class=\"text-sm text-gray-500 hidden lg:inline-block\">4 min read<\/span>\n                                    <\/div>\n            \n           <div class=\"flex gap-3 items-center my-2 flex-nowrap text-base\">\n                <!-- Avatar and Author Name -->\n                <img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/cropped-garrettbrown-150x150.jpeg\" class=\"w-8 h-8 object-cover my-0 inline-block rounded-full\" alt=\"\" title=\"\"><span class='leading-snug text-slate-500 flex items-center'><span class='hidden whitespace-nowrap sm:inline-block md:hidden lg:inline-block pr-1'><span class='posted-on'><time class=\"entry-date published\" datetime=\"2025-11-05T12:22:07-07:00\">Nov 05, 2025<\/time><time class=\"updated\" datetime=\"2025-11-05T12:24:45-07:00\">Nov 05, 2025<\/time><\/span><\/span>&nbsp;<a href=\"https:\/\/www.biggerpockets.com\/blog\/contributors\/garrettbrown\" class=\"no-underline line-clamp-1\" target=\"_blank\">Garrett Brown<\/a><\/span>            <\/div>\n\n            <!-- Post title -->\n\t\t\t<h2 class=\"entry-title js-toc-ignore mt-4 mb-0 text-xl leading-snug text-left\">\n\t\t\t\t<a href=\"https:\/\/www.biggerpockets.com\/blog\/20-ways-to-fnd-real-estate-deals-in-2026\" rel=\"bookmark\" class=\"whitespace-normal no-underline font-bold  text-slate visited:text-slate hover:text-themeBlue\" target=\"_blank\">\n\t\t\t\t\t20 Ways to Find Real Estate Deals in 2026\t\t\t\t<\/a>\n\t\t\t<\/h2>\n\t\t\t\n                        <p class=\"text-lg font-normal mt-3 text-slate-500 mb-1 line-clamp-3\">This article is presented by PropStream. When I first started real estate investing, I thought securing money for a deal would be the hardest thing. (I mean, it still isn&#8217;t&hellip;<\/p>\n\t\t<\/div>\n\t<\/header>\n     <footer class=\"flex justify-between mt-auto\">\n        <!-- Comment Count -->\n        \t\t<span class='flex items-center space-x-2 text-sm' x-cloak x-data='commentCount()' :class=\"parseFloat(commentCount) < 1 || commentCount == '' ? 'hidden' : 'flex'\">\n\t\t\n            <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-5 w-5 text-slate text-opacity-50\" fill=\"none\" viewBox=\"0 0 24 24\" stroke=\"currentColor\">\n                <path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M17 8h2a2 2 0 012 2v6a2 2 0 01-2 2h-2v4l-4-4H9a1.994 1.994 0 01-1.414-.586m0 0L11 14h4a2 2 0 002-2V6a2 2 0 00-2-2H5a2 2 0 00-2 2v6a2 2 0 002 2h2v4l.586-.586z\" \/>\n            <\/svg>\n\n            <span x-ref=\"comment_count\" class=\"disqus-comment-count text-slate text-opacity-80\" data-disqus-identifier=\"185498\">\n\t\t\t\t\t\t\t<\/span>\n        <\/span>\n\t    <\/footer>\n<\/article><!-- #post-185498 -->\n<article \n\tid=\"post-185021\" \n\tclass=\"content-card mb-0 flex flex-col  post-185021 post type-post status-publish format-standard has-post-thumbnail hentry category-deal-analysis\">\n\n\t<header class=\"entry-header\">\t\t\t\n\t\t<!-- Image -->\n        \t\t\t<a class=\"post-thumbnail\" href=\"https:\/\/www.biggerpockets.com\/blog\/why-search-for-property-owners-first-heres-five-reasons\" target=\"_blank\" aria-hidden=\"true\" tabindex=\"-1\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"340\" height=\"225\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2025\/09\/google-search_canva-340x225.jpg\" class=\"size-card w-full  m-0 aspect-[68\/45] object-scale-down wp-post-image\" alt=\"Why Search For Property Owners First? Here&#8217;s Five Reasons\" title=\"\">\t\t\t<\/a>\n\t\t        \n\n\t\t<!-- Content Wrapper -->\n\t\t<div class=\"py-4 \">\t\n                            <div class=\"flex gap-4 justify-between items-center\">\n                    <!-- Category  -->\n                                            <a href=\"https:\/\/www.biggerpockets.com\/blog\/category\/buying-selling\/deal-analysis\" class=\"transition-colors bg-themeBlue\/20 text-themeBlue-medium hover:bg-themeBlue hover:text-white px-2 py-1 mb-2 inline-block rounded-sm no-underline text-sm\" target=\"_blank\">Finding Deals<\/a>\n                    \n                                            <span class=\"text-sm text-gray-500 hidden lg:inline-block\">4 min read<\/span>\n                                    <\/div>\n            \n           <div class=\"flex gap-3 items-center my-2 flex-nowrap text-base\">\n                <!-- Avatar and Author Name -->\n                <img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/cropped-garrettbrown-150x150.jpeg\" class=\"w-8 h-8 object-cover my-0 inline-block rounded-full\" alt=\"\" title=\"\"><span class='leading-snug text-slate-500 flex items-center'><span class='hidden whitespace-nowrap sm:inline-block md:hidden lg:inline-block pr-1'><span class='posted-on'><time class=\"entry-date published\" datetime=\"2025-10-02T13:31:55-06:00\">Oct 02, 2025<\/time><time class=\"updated\" datetime=\"2025-10-02T13:32:28-06:00\">Oct 02, 2025<\/time><\/span><\/span>&nbsp;<a href=\"https:\/\/www.biggerpockets.com\/blog\/contributors\/garrettbrown\" class=\"no-underline line-clamp-1\" target=\"_blank\">Garrett Brown<\/a><\/span>            <\/div>\n\n            <!-- Post title -->\n\t\t\t<h2 class=\"entry-title js-toc-ignore mt-4 mb-0 text-xl leading-snug text-left\">\n\t\t\t\t<a href=\"https:\/\/www.biggerpockets.com\/blog\/why-search-for-property-owners-first-heres-five-reasons\" rel=\"bookmark\" class=\"whitespace-normal no-underline font-bold  text-slate visited:text-slate hover:text-themeBlue\" target=\"_blank\">\n\t\t\t\t\tWhy Search For Property Owners First? Here&#8217;s Five Reasons\t\t\t\t<\/a>\n\t\t\t<\/h2>\n\t\t\t\n                        <p class=\"text-lg font-normal mt-3 text-slate-500 mb-1 line-clamp-3\">This article is presented by PropStream. Do you remember the time when we would get deliveries of stacks of phone books at our front door? No? Is that me just&hellip;<\/p>\n\t\t<\/div>\n\t<\/header>\n     <footer class=\"flex justify-between mt-auto\">\n        <!-- Comment Count -->\n        \t\t<span class='flex items-center space-x-2 text-sm' x-cloak x-data='commentCount()' :class=\"parseFloat(commentCount) < 1 || commentCount == '' ? 'hidden' : 'flex'\">\n\t\t\n            <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-5 w-5 text-slate text-opacity-50\" fill=\"none\" viewBox=\"0 0 24 24\" stroke=\"currentColor\">\n                <path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M17 8h2a2 2 0 012 2v6a2 2 0 01-2 2h-2v4l-4-4H9a1.994 1.994 0 01-1.414-.586m0 0L11 14h4a2 2 0 002-2V6a2 2 0 00-2-2H5a2 2 0 00-2 2v6a2 2 0 002 2h2v4l.586-.586z\" \/>\n            <\/svg>\n\n            <span x-ref=\"comment_count\" class=\"disqus-comment-count text-slate text-opacity-80\" data-disqus-identifier=\"185021\">\n\t\t\t\t\t\t\t<\/span>\n        <\/span>\n\t    <\/footer>\n<\/article><!-- #post-185021 -->\n<article \n\tid=\"post-183934\" \n\tclass=\"content-card mb-0 flex flex-col  post-183934 post type-post status-publish format-standard has-post-thumbnail hentry category-deal-analysis\">\n\n\t<header class=\"entry-header\">\t\t\t\n\t\t<!-- Image -->\n        \t\t\t<a class=\"post-thumbnail\" href=\"https:\/\/www.biggerpockets.com\/blog\/how-i-stopped-wasting-hours-hunting-for-real-estate-leads\" target=\"_blank\" aria-hidden=\"true\" tabindex=\"-1\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"340\" height=\"225\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2025\/07\/leads_canva-340x225.jpg\" class=\"size-card w-full  m-0 aspect-[68\/45] object-scale-down wp-post-image\" alt=\"How I Stopped Wasting Hours Hunting For Real Estate Leads\" title=\"\">\t\t\t<\/a>\n\t\t        \n\n\t\t<!-- Content Wrapper -->\n\t\t<div class=\"py-4 \">\t\n                            <div class=\"flex gap-4 justify-between items-center\">\n                    <!-- Category  -->\n                                            <a href=\"https:\/\/www.biggerpockets.com\/blog\/category\/buying-selling\/deal-analysis\" class=\"transition-colors bg-themeBlue\/20 text-themeBlue-medium hover:bg-themeBlue hover:text-white px-2 py-1 mb-2 inline-block rounded-sm no-underline text-sm\" target=\"_blank\">Finding Deals<\/a>\n                    \n                                            <span class=\"text-sm text-gray-500 hidden lg:inline-block\">3 min read<\/span>\n                                    <\/div>\n            \n           <div class=\"flex gap-3 items-center my-2 flex-nowrap text-base\">\n                <!-- Avatar and Author Name -->\n                <img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/cropped-garrettbrown-150x150.jpeg\" class=\"w-8 h-8 object-cover my-0 inline-block rounded-full\" alt=\"\" title=\"\"><span class='leading-snug text-slate-500 flex items-center'><span class='hidden whitespace-nowrap sm:inline-block md:hidden lg:inline-block pr-1'><span class='posted-on'><time class=\"entry-date published\" datetime=\"2025-07-22T09:51:21-06:00\">Jul 22, 2025<\/time><time class=\"updated\" datetime=\"2025-07-30T11:08:17-06:00\">Jul 30, 2025<\/time><\/span><\/span>&nbsp;<a href=\"https:\/\/www.biggerpockets.com\/blog\/contributors\/garrettbrown\" class=\"no-underline line-clamp-1\" target=\"_blank\">Garrett Brown<\/a><\/span>            <\/div>\n\n            <!-- Post title -->\n\t\t\t<h2 class=\"entry-title js-toc-ignore mt-4 mb-0 text-xl leading-snug text-left\">\n\t\t\t\t<a href=\"https:\/\/www.biggerpockets.com\/blog\/how-i-stopped-wasting-hours-hunting-for-real-estate-leads\" rel=\"bookmark\" class=\"whitespace-normal no-underline font-bold  text-slate visited:text-slate hover:text-themeBlue\" target=\"_blank\">\n\t\t\t\t\tHow I Stopped Wasting Hours Hunting For Real Estate Leads\t\t\t\t<\/a>\n\t\t\t<\/h2>\n\t\t\t\n                        <p class=\"text-lg font-normal mt-3 text-slate-500 mb-1 line-clamp-3\">This article is presented by REsimpli. There is a common phrase in real estate investing that says, \u201cThe money is made before the deal is even purchased.\u201d&nbsp; How exactly do&hellip;<\/p>\n\t\t<\/div>\n\t<\/header>\n     <footer class=\"flex justify-between mt-auto\">\n        <!-- Comment Count -->\n        \t\t<span class='flex items-center space-x-2 text-sm' x-cloak x-data='commentCount()' :class=\"parseFloat(commentCount) < 1 || commentCount == '' ? 'hidden' : 'flex'\">\n\t\t\n            <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-5 w-5 text-slate text-opacity-50\" fill=\"none\" viewBox=\"0 0 24 24\" stroke=\"currentColor\">\n                <path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M17 8h2a2 2 0 012 2v6a2 2 0 01-2 2h-2v4l-4-4H9a1.994 1.994 0 01-1.414-.586m0 0L11 14h4a2 2 0 002-2V6a2 2 0 00-2-2H5a2 2 0 00-2 2v6a2 2 0 002 2h2v4l.586-.586z\" \/>\n            <\/svg>\n\n            <span x-ref=\"comment_count\" class=\"disqus-comment-count text-slate text-opacity-80\" data-disqus-identifier=\"183934\">\n\t\t\t\t\t\t\t<\/span>\n        <\/span>\n\t    <\/footer>\n<\/article><!-- #post-183934 -->        <\/div>\n      <\/div>\n    <\/div>\n  <\/div>\n\n  \n\n\n<h2 class=\"wp-block-heading\">Knowing the risks<\/h2>\n\n\n\n<p>If you could immediately quadruple your investment with zero risk, of course you would make that investment.<\/p>\n\n\n\n<p>But what if this \u201copportunity\u201d carried a million to one odds? Then this would be called the state lottery, and I\u2019m guessing virtually none of you indulge yourself at that casino on a regular basis.<\/p>\n\n\n\n<p>While we can easily see through the risk and fallacy of a speculation like that, I\u2019m afraid that many of us don\u2019t know how to critically evaluate the risks of alternative assets. This is the purpose of this post.<\/p>\n\n\n\n<p>Note that there are many alternative investments: art, ATMs, music royalties, oil, and more. This article is only about real estate since that is the arena of my experience.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why is evaluating risk so difficult?<\/h2>\n\n\n\n<p>Risk is an inherent problem when investing in alternative assets. Risk is often a result of insufficient information. Investing in stock and bond markets carry risk, too, but their popularity and widespread adaptation result in thousands (or even millions) of eyeballs on the same information. And a century of regulations purportedly result in greater transparency and reporting standards that allow comparison across thousands of publicly traded options.<\/p>\n\n\n\n<p>Not so with most real estate and other alternative investments. The inherent fragmentation of these asset types results in heightened difficulty when evaluating their relative risks. The lack of available data, systematic reporting, and studies can heighten the risk of the unknown.&nbsp;And the risk can go up even more at the individual asset level.<\/p>\n\n\n\n<p>As inferred with the example that opened this post, risk should be evaluated in conjunction with returns. The following chart explores one astute investor\u2019s attempt to quantify and evaluate these risks and returns.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"936\" height=\"618\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/before-you-invest.png\" alt=\"\" class=\"wp-image-137081\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/before-you-invest.png 936w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/before-you-invest-300x198.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/before-you-invest-768x507.png 768w\" sizes=\"auto, (max-width: 936px) 100vw, 936px\" \/><\/figure>\n\n\n\n<p>This chart was created by BiggerPockets member <a href=\"https:\/\/www.biggerpockets.com\/users\/Ckwasny\" target=\"_blank\">Christine Kwasny<\/a>. Christine is a passive investor with my firm, and she reached out to me late last year to discuss the topic of risk evaluation for alternative assets. This chart is based on her own research and opinions \u2013 feel free to differ with her.<\/p>\n\n\n\n<p>Christine was puzzled, as I sometimes am, by the question of why investors often favor stocks, even in the face of widespread evidence that supports investing in real estate.<\/p>\n\n\n\n<p>She said, \u201cStrangely, despite glowing reviews of the many benefits of real estate investing, it seems many investors still lean heavily on stocks versus alternative investments within their overall asset portfolio, and I can&#8217;t determine why.&nbsp;Perhaps they don&#8217;t understand the relative risk of stocks versus real estate.&nbsp;Perhaps they desire liquidity.&nbsp;Or maybe they can&#8217;t create a diversified portfolio of syndicated deals, as one can with stock index funds that would greatly mitigate one&#8217;s overall risk.\u201d<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">How to understand this chart<\/h3>\n\n\n\n<p>The Y-axis (vertical) shows her take on the relative nonquantified risk of an investment in each asset type. The highest risk is at the top. She ranks investing in an <em>individual project, company, or stock<\/em> in this category. She ranks <em>bond index funds<\/em> at the bottom, as a very low risk investment.<\/p>\n\n\n\n<p>The X-axis (horizontal) evaluates the 50-year average and range of returns for each asset type. <em>Cash<\/em> shows the lowest average return at a few percent, while Christine ranks <em>syndicated growth portfolios<\/em> at the top of investments with a quantified range, estimating returns of 15% to 20%.<\/p>\n\n\n\n<p>This top-ranked asset type is perhaps the hardest to understand. (And please note this is of particular interest to me since this is what my firm does.)<\/p>\n\n\n\n<p>She defined the syndicated growth portfolio this way: \u201cI consider an investor&#8217;s allocations to a \u2018syndication portfolio\u2019 as investments spread across many well-vetted projects that minimize direct project risk, and provides strong diversification to further dilute risk exposure&#8230;\u201d<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Why is this chart great?<\/h3>\n\n\n\n<p>I love this chart. Christine has dug deep to pull together the data points on this chart, and I wanted to get this in front of you. Note that this chart doesn\u2019t prove that you need to invest in real estate. (That\u2019s not the point.) But it does give you a grid to compare potential outcomes in light of risk and return.<\/p>\n\n\n\n<p>It\u2019s notable that Christine has two real estate investment types on this chart. She ranks self-owned real estate as a lower-risk asset than syndicated growth portfolios. But this asset type also shows a lower average return (at about 5 to 15 percent) than syndicated portfolios (at about 15 to 20 percent). This is commensurate with our discussion on the nature of risk and return.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Factoring in the time value of money<\/h2>\n\n\n\n<p>As someone who has invested in both of these real estate types, I want to add a comment. The often-significant expenditure of time and hassle in managing self-owned real estate needs to be factored into the equation. Owning and managing properties is a hassle. And that adds to the risk.<\/p>\n\n\n\n<p>For most passive investors in syndicated real estate, however, this is one way it shines, and in my mind, reduces the relative risk. Before the selection of either a property or syndication, there is a lot of analysis and research involved.<\/p>\n\n\n\n<p>But after the decision is made, a syndication investor\u2019s effort is typically limited to their walk to the mailbox to get their monthly or quarterly check. This is a significant advantage for investors who have busy lives, demanding jobs, or enjoyable retirements.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-css-opacity\"\/>\n\n\n\n<div class=\"wp-block-group alignwide\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\"><figure class=\"wp-block-media-text__media\"><a href=\"https:\/\/www.biggerpockets.com\/bp-insights?utm_source=blog&amp;utm_medium=blog%20banner\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" width=\"425\" height=\"425\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/bpinsights.png\" alt=\"\" class=\"wp-image-137046 size-full\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/bpinsights.png 425w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/bpinsights-300x300.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/bpinsights-150x150.png 150w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/bpinsights-200x200.png 200w\" sizes=\"auto, (max-width: 425px) 100vw, 425px\" \/><\/a><\/figure><div class=\"wp-block-media-text__content\">\n<h3 class=\"wp-block-heading\">Upgrade your investing today<\/h3>\n\n\n\n<p>Successful investing requires accurate, easy-to-understand information about your properties and the markets you invest in. <a href=\"https:\/\/www.biggerpockets.com\/bp-insights?utm_source=blog&amp;utm_medium=blog%20banner\" class=\"rank-math-link\" target=\"_blank\">BiggerPockets Pro<\/a> gives you the information you need to find your next great deal and maximize your current investments.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.biggerpockets.com\/membership-types?utm_source=blog&amp;utm_medium=blog%20cta\" target=\"_blank\">Become a Pro member<\/a><\/div>\n<\/div>\n<\/div><\/div>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n<\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">How experience reduces risk<\/h2>\n\n\n\n<p>One way to reduce risk is to gain knowledge and experience. When I did my first flip in 2000, I didn\u2019t know what I didn\u2019t know. But after flipping dozens of homes in the next several years, and losing money on some, I had a wealth of information on how to evaluate a deal.<\/p>\n\n\n\n<p>Two decades later, I\u2019m in the same boat as I evaluate syndicators and assets on behalf of accredited investors. The knowledge our team has gained helps us make better decisions\u2014which reduces the risk.<\/p>\n\n\n\n<p>For example, I learned firsthand about the risk caused by competition from a nearby ground-up self-storage project from an investment near Tampa. On a subsequent due diligence trip for a different investment, I went to the local planning and zoning commission armed with the right questions. That\u2019s how I learned about two new facilities in the works and canceled a $2 million investment in that project.<\/p>\n\n\n\n<p>In your case, you\u2019ll find that gaining a depth of knowledge about a topic will reduce your risk and increase returns. This is one reason Warren Buffett spends up to eight hours daily reading. His massive knowledge allows him to sniff out great deals that others miss. And his investors are the beneficiaries.<\/p>\n\n\n\n<p>Before we wrap up this discussion, let\u2019s look at one more helpful chart. This one, assembled by Thomson Reuters, only includes core commercial real estate, not residential. It compares the annualized <strong>returns<\/strong> (Y-axis) versus <strong>risk<\/strong> (X-axis) across major asset classes. The goal is to be as far to the left as possible (low standard deviation\/risk) and as high as possible (high return).<\/p>\n\n\n\n<p>Check it out&#8230;<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"936\" height=\"398\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/Risk-Return-Across-Asset-Classes.png\" alt=\"\" class=\"wp-image-135613\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/Risk-Return-Across-Asset-Classes.png 936w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/Risk-Return-Across-Asset-Classes-300x128.png 300w\" sizes=\"auto, (max-width: 936px) 100vw, 936px\" \/><\/figure>\n\n\n\n<p>As you can see, core commercial real estate has by far the highest return per unit of risk of all these asset classes (according to this source for this time period). Perhaps that\u2019s why almost all of the Forbes 400, the wealthiest individuals in America, invest in commercial real estate.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">So, what do these charts mean to you, Mr. or Mrs. Investor?<\/h2>\n\n\n\n<p>These charts provide a reminder and a calling to carefully evaluate both risk and return for every asset class and deal you invest your time and money in. And these charts can help you evaluate where to get started if that\u2019s where you are.<\/p>\n\n\n\n<p>And I view this as a call for focus. Since it\u2019s impossible for you to have deep knowledge of all these asset classes, I recommend you pick one, or more likely a subset of one. And go deep on that. <em>Learn<\/em> all you can, <em>do<\/em> all you can, and <em>become<\/em> a subject matter expert.<\/p>\n\n\n\n<p>If you\u2019re already making a good living in your occupation, consider outsourcing your real estate investments or partnering with someone who is obsessed with it as their full-time gig. Residential investors can \u201cpassively\u201d invest through private lending in notes, hard money funds, flips, and more. Commercial investors can passively invest in syndications or funds.<\/p>\n\n\n\n<p>As a member of the BiggerPockets community, you\u2019re in the best place on the planet to go deep in real estate and to connect with like-minded active and passive investors who can help you along the path to your goal.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cStep right up! Come one, come all! Today we\u2019re offering an opportunity to quadruple your money!\u201d Would you take this deal? After all, who wouldn\u2019t want a 300% profit on [&hellip;]<\/p>\n","protected":false},"author":214608,"featured_media":135969,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524,7119],"tags":[7205,7209],"class_list":["post-135610","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners","category-biggerpockets-daily","tag-basics","tag-newbies-advice"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/135610","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/214608"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=135610"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/135610\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/135969"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=135610"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=135610"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=135610"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}