Real estate investing can be much more deceiving and damaging than most people would give it credit. With so much to lose, many real estate “semi-professionals” are ill-equipped to begin making such split second decisions that inevitably changes the life of the investor and that of the investor’s family.
However, risk is merely said to be the cost of an opportunity; the opportunity for the common man to make vast sums of money beyond the average 9-5 work week. I think it is fair to say that is why the majority of us are here, taking risks week after week.
Newer investors, including myself 8 years back, are often under the assumption that the sole cost of risk in real estate is solely the cash one uses to enter into and maintain a piece of real estate while you wait for your ROI. This could not be further from the truth. While there are great fortunes to be made, cash will not be your sole reward. Be conscious that you are risking more than just cash money when you enter into any real estate transaction.
The Risks & Rewards of Real Estate Investing
Reputation: A reputation is slow to build up and easy to ruin. For every cause there is an effect, and for every effect there is a reputation at stake. If you plan to invest in real estate for any length of time you will have some-sort of a reputation. Will it be held with honor and respect, as a name that people know to call when they are in need your services? Will your reputation be soiled from the beginning of your career; perhaps keeping you from ever truly succeeding or believing in your own abilities? Or will you never develop a reputation because of your inaction to ever pull the real estate trigger?
Credit: A few times in my real estate career I have been invited to joint venture with other real estate investors if I would become their “straw buyer.” A straw buyer is essentially a silent partner that gets paid a fee for signing his/her name and credit to successfully get approved for a loan and fund a real estate transaction. The going rate was $5,000 per loan at the time. I could make a quick and easy $5,000 simply by successfully getting approved and closing on an investment property for other investors to hold, maintain, pay for, or flip for a profit. But was it easy money? When the real estate bubble burst in Tampa back in 2007 I knew several newbie “straw buyers” that had their credit scores destroyed by other investors or joint venture partners that simply let the property slide into foreclosure instead of risking more of their own money.
Knowledge: Some of my best lessons I’ve learned have been from mistakes I have made while real estate investing. While in the negotiation process for a mobile home park I was very interested in purchasing I over negotiated and lost an already greatly negotiated deal. The investor who bought the mobile home park has since sold it for a significant five-figure profit. During the negotiation I was very conscious that the last counter offer made to me was excellent and more than fair; but what could it hurt to ask for a little more of a reduced price? This deal was seized by another, more seasoned investor that perhaps had already been through the lesson I was just learning. I soon internalized the quote, “You can’t steal in slow motion” as a life motto. Without this painful and costly lesson I would have missed my opportunity for other more profitable deals I have executed since this first negotiation blunder.
Time & Energy: Perhaps the most valuable of all our commodities is our personal time and energy. This entails the energy you spend finding your real estate deals and making unaccepted offers, the time you spend worrying what to do next, the time of cashing a $30,000 profit check and the lack of energy you will spend vacationing for a month with loved ones. Every one of us has 24 hours in every day. Between working, spending time with our families, and a few hours of sleep, we seldom feel like we have any more time for additional commitments. You will eventually be faced with this decision, “Do I risk my time and energy now, to try and attempt something that may make me and my family happy for the foreseeable future?” The choice is yours and there is no wrong answer.
The wonderful thing about a topic like Risk vs. Reward is that there are no right or wrong answers, just your opinion. After you perform your due diligence to know whether or not your potential real estate deal is a favorable one, the choice to pull the trigger and take the risk is yours alone. If you make a profit, society will call you a genius; if you fail then society . . . forget society; If you fail, then you will stand up and keep climbing your way to where you want to be.
Always keep in mind ALL that you truly have to risk, and gain in every real estate transaction.
– J. Fed