Balancing Risk and Reward in Real Estate Investing

All I seem to hear about these days is cryptocurrencies and Marijuana stocks. I was speaking with someone the other night who is well versed in the real estate circle but still has over half a million dollars tied up in the stock market; particularly in Marijuana stocks.

But honestly, the concept of trading stocks is a bit scary for me.  I still feel like I lack control and knowledge when it comes to the direction of the market.

Which is why I choose to invest in real estate – I put all my eggs in one basket and am not worried about diversification at all.

I had a financial advisor cold knock at my door the other day, wanting to speak with me about his products – he even had some suggestions on well performing stocks that I could work well for me.  I explained to him that I am a real estate investor, and have all my funds tied up in the market.  His response was – isn’t that risky?

The dictionary defines ‘risky’ as : full of the possibility of danger, failure, or loss

Really? That is the farthest thing from what I define real estate investing to be.  In my mind, there is very little possibility of failure or loss – but mostly because I am an educated and savvy investor in full control of my decisions.

I mitigate my risk every day – by purchasing the right properties based on hard numbers and economic fundamentals and having a solid process in place for managing tenants and repairs.

All the “What If’s” have perfectly good answers, which helps me sleep soundly every night

1.What if the Market Crashes : Well my friends, we are in this for the long haul.  And guess what, the trends show that no mater what the short term blips in the market show, in the long run real estate prices ALWAYS go up.

2. What If my tenants don’t pay rent or wreck my property?

This is a very real possibility I will not sugar coat it.  We have had tenants who don’t pay rent – sometimes they start out as good tenants and hit a bump in the road, a separation or job loss.  They stop paying rent.  But we have amazing paralegals on our team to help us with these issues and we have successfully evicted tenants with manageable amounts of loss.

We have even gone after previous tenants and succeeded in garnishing their wages for rent due.  The system isn’t always doom and gloom.

As for property damage – yes it happens too.  But it is the cost of business and can be managed by putting aside maintenance and repair budgets for each property.  Perhaps your profit will be less than expected on a property one year if something major happens, but overall the risk can be mitigated with constant upkeep and stringent tenant selection.

3. What If I need to liquidate my money

As much as real estate is a long term investment, in my eyes, it is also a fairly liquid one; especially if you are investing in the residential real estate market.  The model I follow is to buy starter homes in good area, and my experience is that there is always a demand for these.  So if you need to liquidate, it is simply a matter of selling your home.  If you bought strategically, there should be absolutely no issue with this at all.

So until next time, happy Canadian Real Estate Investing.

Jose Jafferji, REIA

Your Real Estate Investment Advisor, Coach & Realtor