Whether you are buying, selling, or investing in real estate, stocks, mutual funds, gold,
(or anything for that matter), you always have to assess the “risks” involved.
And when people aren’t 100% familiar with the investment they are considering, they tend to fear “risk”.
There will always be the proverbial “they” who will say that any investment is risky! Chance are “they” didn’t manage their own risk when they invested, and they wound up losing money or having a bad overall experience.
I’m not saying that investments have no risk, nor am I suggesting you should jump into any investment blindfolded and pay no consideration to risk – that would be foolish!
But regardless of what you consider investing your money in, for you to assess if it is too risky for you (or within you risk tolerance), you must first understand what “risk” is exactly.
Some experts suggest that the more you seek to understand what you are investing in, the less risky it is. And there is definitely truth to that statement. But some people tend to embark on an endless journey of learning about a certain type of investment (in effort to reduce or eliminate risk), and they ultimately don’t invest in anything due to “analysis paralysis“. That is – they become paralyzed with fear because they have become overwhelmed with facts and lost focus on how to execute their investment plan safely.
Unless you deal full-time with the type of product you are investing in (eg. for a living), you will ALWAYS feel like there is more that you could learn. The funny thing is that most people know what a stock is, yet they have no idea what drives stock prices up or down. Yet, because the ‘norm‘ is to invest in (buy) mutual funds [because we assume that a fund manager must understand the stocks better than we do] – people go out and invest in mutual funds every day.
Robert Kiyosaki (author of Rich Dad Poor Dad, and co-author of Why We Want You To Be Rich with Donald Trump) once said [and he’s absolutely right]
“The more control you have over something … the less risk!
The less control you have over something … the more risk there is for you!”
In the real estate investment properties that we buy personally, we control virtually every factor. And that is exactly what we show people how to do at at our Free Millionaire Real Estate Investor Info Nights!
When you buy mutual funds, you can’t tell the fund manager what stocks to buy and what to sell in the mutual fund’s portfolio.
If you don’t want to be a “hands-on” investor, it just means you must assemble the perfect “power team” to carry out your instructions for you. It’s called “Managing-the-Manager”. Or you can try partnering with someone who might be more hands-on or knowledgeable. Passive revenue is a buzz-word these days, and I do believe in passive revenue – for the right reasons.
I’ll tell you this:
1. Everybody needs a home, and there are some areas in Greater Toronto, that enjoy significantly MORE demand than supply (compared to other areas). Thus, there is no risk of vacancy, low rent, or getting stuck with a property you can’t sell.
2. The price can drop on a stock overnight, or a company could declare bankruptcy before you can prepare to sell your stock or mutual funds. But while a housing market could (in theory) go down:
a) It doesn’t plummet over night (in the Greater Toronto area).
b) Our continually increasing market prices could stop increasing at the exceptional pace it has been, but since we are not in the same economic conditions as we were in the late 1980’s, we are unlikely to see the prices of our real estate drop significantly.
Where can the risk be eliminated?
… By controlling every step of the process!
Assuming that your Realtor and your “Power Team” (Mortgage Broker, Inspector, Lawyer, Contractor, etc.) did a good job of helping you research the area and property you are you are buying (investing in), here is what you CAN control:
- What area you buy/sell in
- How much you pay for a house/condo
- How much it will cost you to fix or renovate
- How much it will cost you to carry
- How much you can get for rent/sale
- Who you let in as tenants to rent from you
- How long you intend to keep the property (or when you intend to sell)
- Who you finance the property through
- What renovations or upgrades you intend to do to the property
- Etc ………
If you properly assess your ability to control every step of the process … you reduce the risk as much as humanly possible!
If you would like to discuss ways to reduce risk and increase profit, give us a call: