3 Types of Risks Real Estate Investors Regularly Take

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We are at risk no matter where we are or what we do. Even simple things like getting out of bed, making yourself breakfast, or crossing the street.

I regularly get asked by many investors how to completely avoid risk.

I can feel their disappointment when I tell them it’s impossible, as there is no way of completely avoiding risk. One thing you can do is minimize your risk by having certain measures and precautions in place.

There are three types of risks that I regularly see many investors expose themselves to.

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3 Types of Risks Investors Regularly Take

1. The Blind Risk

This is the riskiest of them all for any investor to undertake.

Scenario: You put a blindfold on, and you cross a very, very busy road. The likelihood of getting hit by a car is extremely high. In my opinion, this is a very dangerous risk that is not worth taking.

A few examples of this “Blind Risk” translated into real estate terms could be an investor buying a property without establishing trust or relationships with key individuals who can serve as your eyes and ears on the ground. Another example would be project managing a renovation from afar or trying to self manage the tenants.

2. The Conscious Risk

This is the “dipping your toe in water before jumping in” risk.

Scenario: You take the blindfold off, and you look left and right before crossing the road. You will still be at risk of getting hit by a car, but because you have made yourself aware of the surroundings, your risk is now minimized.

Related: What Property Owners and Managers Need to Know about Risk Management

A few examples of this “Conscious Risk” in real estate terms could be an investor conducting more due diligence on the people that he is looking at working with, rather than the stats and demographics of a particular area. Another example would be spending enough time building trust and relationships with the right property management and contractor/maintenance crew that will look after your investment.

3. The “Cautious” Risk

Don’t confuse this risk with procrastination or looking at every micro detail.

Scenario: The blindfold has been off for a while; in the past you attempted to cross the road and almost got hit by a car. Now, you decide to look left and right (twice), up and down, AND you turn around to look behind you before crossing. By being cautious in this way, you have significantly reduced your risk.

A few examples of this “Cautious Risk” in real estate terms could be an investor who has already accustomed himself with an area and people on the ground, but is not willing to conduct any business with these individuals for at least 9-12 months. You want to make sure that whoever you are entrusting with your hard earned money will always have your best interests at heart and is happy to guide you throughout the process.

Related: A Controversial Look at Debt, Risk, and My Quest to Make $100,000 Through Leverage

As the saying goes, “All good things take time,” and by being patient and cautious, you will definitely find out who is in it for the long haul or just out to make a quick penny.

Conclusion

Fear and stepping out of your comfort zone are some of the most common obstacles that prevent many investors from becoming successful and achieving their desired goals. They say that greatness lies at one’s breaking point, and the tipping point arrives when you’re just about to give up.

In the end, it is up to you to figure out what level and type of risk you are most comfortable with, but please keep in mind that without risk, there is no reward.

Don’t give up, be patient, pay your dues, and your time will come.

One of my all time favorite quotes is: “Risk is your best friend, while fear is your worst enemy.”

What do you think? Does risk scare you, or do you embrace it in your investing life? What kinds of risks have you taken?

Leave your thoughts and stories below! 

About Author

Engelo Rumora

Engelo Rumora “The Real Estate Dingo" is a successful property investor, motivational speaker and serial entrepreneur that quit school at the age of 14 and played professional soccer at 18. He is also a soon to be published author along with becoming a TV personality in his very own real estate house flipping show. To find out more go to engelorumora.com . Engelo Rumora has been involved in over 400 real estate deals and founded five businesses in Ohio. The most successful is Ohio Cashflow, a company that specializes in providing turnkey properties in several Ohio markets. The newest venture is List’n Sell Realty, a real estate brokerage based in Toledo, Ohio and soon to be known as the #1 discount broker in the country.

12 Comments

  1. Michael Williams

    I embrace risk. Over the years the more I learned about business the more I realized that risk is part of the process of becoming successful. By embracing risk It has become easier to adapt to change, which leads to me forming creative solutions to problems. Remember, the fear of taking any risk at all is what’s keeping 98% of the population living paycheck to paycheck. Fear of losings a guaranteed paycheck or steady income, which has been proven numerous times in the past to NOT be guaranteed. The key for me is to learn as much as I can about my profession so I an make the best possible decisions for my business thus reducing my risk.

    • Engelo Rumora

      Hi Michael,

      Thanks for your awesome comment.

      What you mentioned I see on a daily basis.

      I feel sorry for these folks that succumb to fear and get influenced by the other “98%” in not proceeding with making a better future for themselves.

      Knowledge is power as they say and the more knowledge you have on your practices the less risk you will be exposed to.

      Taking the leap of faith is also what sets us apart.

      Thanks and have a great day.

  2. Karen M.

    I was just thinking that we should have more blog articles about risk here at Bigger Pockets. Thanks for the article. And Engelo, I think it is so interesting how much emphasis you put on the PEOPLE in the business. That is important and something that (as a fairly shy person) that I overlook or even think about avoiding. Good people and good teams are huge, but I imagine it is an adventure to find them and get to know them.

    Specifically when I am thinking about risk, I wonder if I am looking at expected buy-and-hold real estate returns in the wrong way (for me). As a stock investor, I have been saying to myself that if I want real estate, then the real estate needs to outperform the stock market before I am interested. However, perhaps I am looking at this wrong, and I should view real estate more like a bond or like a dividend, where it’s slow and steady (and low-risk).

    My other challenge is thinking of the COMMITMENT required to be in real estate. It’s an expensive, long term commitment. I’m still getting geared up for that part of it.

    Thanks for the article.

    • Engelo Rumora

      Hi Karen,

      Thanks for your comment and kind words.

      Having trustworthy and competent people around you no matter what investment vehicle you decide to take on is crucial IMO.

      When I look back on my journey, I have always failed or lost $$$ due to working with others that where not loyal, where dishonest or greedy.

      Another important trait is “Respect”.

      You want to be surrounded with people that have respect for who you are and what you do.

      Its not easy to find such people, but its worth the wait.

      Thanks and have a great day.

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