Taking Risks in Your Real Estate Business

It would be a great thing in business if we never had to take risks, but it’s a part of life and a part of business. Businesses can face risks from all sorts of factors including; new and existing competition, market changes, antiquated products and procedures, partners, accidents and more.

Not everyone is willing to take risks, so often times it can “thin the herd” in regards to other competitors. In addition, taking a calculated risk can sometimes pay off in big bucks.

Notice the emphasis on the words calculated risk. Taking a calculated risk means doing your due diligence and weighing the factors that make or break the decision. The ability to make a quick and intelligent decision is very important in business.

Whether you should take a risk depends on several factors and your tolerance for risk. Your risk tolerance can change periodically and can depend, in part, on some of the following:

  • Your Financial Condition. This can vary from month to month depending on your profitability, existing cash reserves and present and anticipated future cash flow.
  • Your Personal Situation. Illness, death in the family, financial or personal problems; all can take a toll and reduce your tolerance for risk for a period of time. If a deal is going to cost you months of stress and sleepless nights, then you have to decide for yourself if taking the risk will be worth it or not.
  • Your Business Situation. Are you pressed for time because you have a good number of deals already going on? Are they producing or taking away from your cash flow- both for now and in the immediate future. Do you have future business coming up?

Here are some of the benefits to taking calculated risks:

1.  It Can Cause You to Refine Your Current Skill Sets. Taking risks can make you stretch in an attempt to make the outcome successful and allow you to better anticipate and overcome challenges that you may encounter along the way.

2. It Can Cause You to Re-establish Your Current Limitations. Think back to when you learned a new skill such as riding a 2- wheeled bike. When you first started, you may have used training wheels, but soon graduated into some 2- wheeled, albeit wobbly, riding without them. You learned that taking a sharp turn in loose gravel didn’t normally yield a good outcome, so you approached those areas with caution or avoided them altogether. The more you rode, the more proficient you became until you were doing amazing things on your bike, and having fun doing it. What initially seemed risky, was no longer a problem. What newbies perceive as a substantial risk, may not feel risky to an experienced investor, that has been down that road before. For new investors perception can sometimes blur their reality of a particular situation.

3. Risk Taking Can Open You and Your Business Up to New Opportunities. In a business, such as real estate, there are a lot of “wannabes” and a few serious players. As a successful “risk taker”, you will likely find that others may refer you or bring you into a deal that they feel others would not be able to successfully complete.

4. In Taking a Calculated Risk, Even a Failure or Partial Failure Can Become a Valuable Learning Process. Let’s face it, you aren’t going to succeed at everything. You should learn from those things that didn’t have the outcomes you desired and don’t repeat past mistakes. Just apply what you learned, and then move on.

THE DOWNSIDE

Taking risks without taking time to assess the probability of success or failure and the potential pitfalls one might encounter along the way can result in loss of cash, cash flow, potential legal actions, loss of reputation and more. The fact is, however, that much of the “downside” in business deals can be anticipated, minimized or even possibly eliminated with the proper forethought, analysis, advice, paperwork and due diligence.

Let’s talk about some suggestions to help minimize the risks in some of the opportunities that you may encounter:

Identify What Your Goals are for this Endeavor and What the Outcome Specifically Should be. You should have a good idea and understanding of the time frame, cost, profit and potential problems involved in a particular deal. Although each deal is different, in many cases the major risks tend to occur at somewhat predictable times throughout the course of a deal.

Anticipate Problems and Have Ready Solutions. Because many of the possible hazards are somewhat predictable, try to figure out where they might “lay waiting” and have solutions to make them go away or better yet, never even raise their problematic heads in the first place. Never dwell on problems and situations that are unlikely to occur. Be sure to dwell on the realistic.

Get Proper Advice. This is where a mentor, trusted adviser or team member can be invaluable. Get their advice, and take it into account, but remember, it’s you that has to make the final decision.

Make Sure That Your Paperwork is 100% Correct and Accurate. The real estate business is a business of paperwork- and lots of it. Make sure your’s is done correctly. A real estate coach/mentor can really be worth their salt on this aspect alone.

Be Educated. Know how to calculate an accurate ARV, repair costs and all the other nuances of a deal. Once again a trusted adviser or mentor can be a valuable asset as an extra set of eyes.!

We want to emphasize that we aren’t suggesting or endorsing that you lay all of your cards onto just one deal. A Coach or mentor can help drastically reduce the risk of some deals you may encounter. Having a variety of short, medium and long term deals and utilizing a variety of strategies helps balance out risk and helps to even out cash flow. Remember, “Calm waters do not a Master Sailor make”.

Now your time to go out and flourish! Here’s to your success!


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About the Author Attorney William Bronchick

Attorney William ("Bill") Bronchick, host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 25+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the Executive Director and founder of the College of American Real Estate Investors. Click on the "About" link above for more information on William Bronchick.

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