Risk is a word that is often associated with a negative meaning. It symbolizes something dangerous that should avoided because, like a poisonous snake, it is sure to harm you. However, risk is more like water. Whereas you do not have to live with poisonous snakes, you have to live with water. And like water, risk can be helpful and nurturing in the form of reward or a dangerous tsunami.

Everyday Risk ⚠️

People associate investing with risk and technically, they are absolutely right: investing is risky. But the mistake is in their understanding of risk. Risk is something to be managed. We manage risk in our personal lives every day:
– Wearing seatbelts
– Locking our doors
– Chewing our food
– Paying our insurance companies
– Making our children wear helmets when they ride bikes

In business and finance, wise and prudent investors also manage risk:
– Lock terms within in a contract
– Review agreements with professionals
– Perform due diligence such as inspections
– Obtain Insurance Policies
– Buy only cash-flowing assets

The above are varieties of choices that people make, all to primarily address one thing: Risk.

Risk is to be managed 🚨

Risk can either be avoided all together or managed. In our investing, we avoid risk by not investing in areas with population declines or few jobs. Rather than attempt to invest in these areas, we avoid the risk altogether.

We choose to manage the risk of suffering investor loss by only buying assets that produce cash flow. While there is great reward for appreciation, we not seek great appreciation unless the asset produces cash to allow for the ability to pay debt service and savings towards reserve throughout the holding period (see Cash Flow is King).

A New Perspective of Risk 💡

To take on risk allows for great rewards, but risk should be calculated, avoided or managed. Because of many people’s failures to do so, risk has become a scary and misunderstood concept, especially when it comes to real estate investing.

Because many wise and astute investors know the power of investing in real estate and have learned how to manage risks, they are growing wealth every day through buying rentals, passively investing in multi-family apartments and other strategies. Risk is managed by first having education and then the discipline to make the decisions that will change your life forever.