How to Assess Your Risk Profile to Know Which Real Estate Niche is Right for You


Every investment can be thought of in terms of a simple gamble: You’re going to put $X on the table and play a game, and you’re going to walk away with $Y. If $Y is greater than $X plus expenses, you win! If not, you lose.

In almost every form of media available to us, we see risk-takers being lauded as the “movers and shakers” of the world. People who achieve impossible ambitions, who stand up to overwhelming authority or power, or who survive insane circumstances through daring and skill — these are the people we’ve been taught to exalt.

But property investment isn’t a heroic endeavor, and this isn’t a movie: You’d better have a really solid understanding of risk before you get in on this game, because if you lose, it’s your own lunch (and that of your family) that you’re risking.

The 20 Best Books for Aspiring Real Estate Investors!

Here at BiggerPockets, we believe that self-education is one of the most critical parts of long-term success, in business and in life, of course. This list, compiled by the real estate experts at BiggerPockets, contains 20 of the best books to help you jumpstart your real estate career.

Click Here For Your Free eBook!

Risk is THE Factor

There’s a lot of literature out there talking about the factors that make up a successful property investor (or investment) — but far too many of those books (and seminars and websites) don’t ever really delve deeply into calculating risk. They just say “avoid these things,” as though a short list of no-nos will stand in for a complete risk analysis. Your personal tolerance for risk (or, as the case may be, intolerance of low reward) is THE single most important factor in any real estate investment.

Determining Your Risk Profile

A person’s risk profile is composed of four elements:

  • Risk Tolerance
  • Risk Appetite
  • Time Commitment
  • Monetary Goal

Related: An Easy, Slow, Low-Risk, & High-Reward Way to Buy Your First Investment Property

Risk tolerance varies from “none” (you can barely afford to invest in the first place, and a loss would directly affect your lifestyle) to “extreme” (you have enough disposable income that you have trouble deciding what to do with it). Most people fall around the “low” category — they could manage if they suddenly lost a few thousand dollars, but that’s about it. In general, you shouldn’t consider real estate as a viable form of investment unless your risk tolerance is at least on the upper edge of “medium.”

Risk appetite varies from “none” (you don’t find the prospect of risking money to be in any way exciting) to “YOLO” (you find nothing more engaging than not knowing that you’ll have food or a house at the end of the evening). Again, most people fall into the “low” category. Real estate investment can appeal to any flavor of risk appetite except “none.” If you want low risk, wait and watch until a complete no-brainer shows up, snap it up, and be done. If you want “YOLO” risk, buy everything and pray.

Time commitment varies from “single parent of three with a full time job” — I mean, “none” — to “bored gourdless.” This is where real estate investing can get really hairy. It’s totally viable for one person to single-handedly landlord for one house while they hold down a full-time job and raise kids. It’s totally viable for a person with literally nothing else to do to single-handedly manage five, maybe six houses — poorly. But if you want to do more than that — even just one house more than that — you absolutely need a property manager. If you want to be a full-time property manager (that is to say, you want to have time and energy to commit to studying the market and finding great properties to invest in), it’s almost impossible without a great property manager.

Monetary goal breaks down into two essential types: You either want to invest because you’re setting up a cash flow, or you want to invest because you’re setting up a nest egg. Both kinds of investment are equally important, and real estate investing can lend itself to either one when set up appropriately.

Related: 3 Ways to Deal With Real Estate Risk Without Letting it Paralyze You

If you’re interested in investing, then, you need to sit back and assess your risk profile, and you need to decide if you have:

  • Risk tolerance enough to put your entire investment down on the roll of a die. One you lose it all, five and six you win 170% back. If you’re not willing to commit to that level of risk, choose a more stable investment.
  • Risk appetite enough that you’ll be happy to have your money out there working for you rather than sitting safely at home growing and sleeping on your feet at night.
  • Time commitment enough to either do the job yourself, or invest the time and effort required to find a property manager you trust and can work with.

If you can do that, and you can research how to set up your investment to achieve your monetary goal as well, then welcome to the world of real estate investing! Pull up a chair, grab a drink, and wait for your turn with the dice.

Investors: How did you find the best real estate investment for your risk profile?

Let me know with a comment!

About Author

Drew Sygit

Drew is the manager of Royal Rose Property Management, a fairly high-tech solution for Detroit Metro area property owners & investors.


  1. Darin Anderson

    I am not sure what the point of this article is but it makes 2 statements that are just ridiculous.

    1. Real Estate investing is a 1 in 6 roll of the dice of losing everything.

    1 in 6 people might have that happen by taking excessive risk but it is not accurate to suggest that every person investing in real estate faces that risk regardless of what they do. I would invest in Vegas over Real Estate if that were true. The real valuable advice would have been how to invest such that you are not taking excessive risk that puts you in that category. Instead this article suggests you simply have to accept that you will be taking on that risk and there is nothing you can do about it. The statement as it was presented is hyperbole and false.

    2. If you have a job and kids you can manage at most 1 property. If you have nothing at all to do you can manage at most 6. Then you need a property management company.

    This is either a self serving scare tactic or simply a blind view from inside a property management company that can’t imagine people are able to do it without them. I have a full time job, 2 kids, coach 2 sports and self manage 18 properties with less than 1% vacancy over 8 years, 4 year average tenancies, very low maintenance costs, all leading to extremely strong cash flows. I would like to see any property management company reproduce that even at the expensive rates they might charge.

    Real Estate investing takes work and involves risk but this article won’t give you very accurate information on either of those topics.

  2. Julie Rogers

    Wow, I got something right.
    When I read the info on when you need a property management company, I immediately thought, this must be written by someone in the property management business.
    Thanks for the time you spent writing the article for us.
    Still I don’t agree with REI being the same as throwing dice.
    If this is a reflection of your experiences, keep reading the BP articles and watching the podcast, and i am sure you experiences will improve.
    Best of Luck!

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here