Podcast Summary
Real estate risk management: Understand personal risk tolerance and align with investment goals, acknowledge potential downsides, and develop strategies to mitigate risks for successful real estate investing.
Real estate investing involves taking on some level of risk for potential rewards. Ashley Wilson, a long-time real estate investor and expert on risk management, emphasizes the importance of understanding your personal risk tolerance and aligning it with your investment goals. She shares her experience of investing in various real estate strategies with family and partners, and how they navigated risks together. Wilson encourages investors to acknowledge the potential downsides of investing, such as market volatility, economic shifts, and unexpected events, and to develop strategies to mitigate those risks. She emphasizes that there's no one-size-fits-all approach to risk management and encourages investors to seek out the best risk-adjusted returns for their portfolio. In summary, recognizing and managing risk is a crucial aspect of successful real estate investing.
Investment Strategies: Understanding your investment goals and risk tolerance is crucial to determine the best investment strategy. Wealth building investors may prefer higher risk, higher reward projects, while capital preservation investors may opt for lower risk, stable cash flow assets. Personal experience and global portfolio view also play a role in investment decisions.
Understanding your investment goals and risk tolerance is crucial in determining the type of investment strategy that suits you best. The speaker categorizes investors into three main groups: wealth building, capital preservation, and tax benefits. Each category comes with its own risk-reward profile. For instance, those in wealth building mode might prefer new construction projects with higher returns but greater risk, while those in capital preservation mode may opt for core plus assets with stable cash flows and lower risk. The speaker's personal experience of starting to invest in real estate during the market downturn in 2009 highlights the importance of being aware of the global view of your portfolio and being willing to take calculated risks with disposable income. It's essential to recognize that everyone's priorities and risk tolerance levels differ, and it's crucial to identify yours before making an investment decision.
Real Estate vs Stock Market Risks: Real estate and stock market come with unique risks. Real estate offers tax benefits, upside potential, and asset backing, but requires understanding and management. Personal experience and education are crucial before investing.
Real estate and the stock market come with their own unique risks, and it's essential to understand what you're comfortable with before investing. While real estate may be considered riskier than some assets like US government bonds or bonds in general, it can offer tax benefits, upside potential, and asset backing that some investors find appealing. Additionally, having a reliable property management solution can help mitigate risks. The speaker shares his personal experience of investing in real estate despite not fully understanding all the risks at the time, which ultimately worked out for him. However, he strongly advises education and understanding the risks before investing. The decision between real estate and other asset classes ultimately depends on individual risk tolerance and investment goals.
Real Estate Risks: Understand and manage controllable risks (purchase price, population growth, unemployment rate) and uncontrollable risks (pandemics, policy changes) to make informed decisions and mitigate potential losses in real estate investments. Host Financial and Steadily can help with controllable and uncontrollable risks respectively.
As a real estate investor, it's essential to understand and manage the controllable and uncontrollable risks in your investments. Controllable risks include factors like purchase price, population growth, and unemployment rate, which can be researched and factored into your underwriting. Uncontrollable risks, such as pandemics or policy changes, require education and adaptation. Host Financial, with its focus on property income potential and efficient lending process, can help investors unlock their properties' full potential and navigate the controllable risks. Meanwhile, Steadily landlord insurance offers protection against property damage, loss of rental income, and liability claims, helping investors manage the uncontrollable risks. By understanding and managing these risks, real estate investors can make informed decisions and mitigate potential losses.
Interest rate changes: Mitigate risk by focusing on controllable factors, like adjusting business plans or pivoting business model in response to unexpected interest rate changes
As investors, we cannot predict or control certain uncontrollable variables such as Black Swan events or sudden changes in interest rates. However, we can mitigate the risk by focusing on controllable factors, like adjusting our business plans or capital expenses based on the new circumstances. For instance, if interest rates were to rise unexpectedly, we might need to reconsider our repair strategies or even pivot our business model to adapt to the new environment. It's essential to assess whether our current underwriting, asset management, and general operations can continue to thrive under the new conditions or if it's a better strategic move to explore other opportunities. Ultimately, we must accept that there will always be uncontrollable variables, but we can still create value and mitigate risk by being agile and adaptive in our business strategies.
Market assessment, Rent and incentives: Assessing supply and demand imbalances is crucial for making informed decisions on rents and incentives. Vacant units now cost more due to increased marketing and team efforts, making tenant retention through incentives a cost-effective solution.
Effective risk mitigation in business involves focusing on controllable factors, such as operational efficiency and occupancy trends. Ashley Wilson, a real estate expert, emphasized the importance of assessing supply and demand imbalances to make informed decisions about rents and incentives for tenants. Pre-pandemic, the cost of a vacant unit was between $5,000 and $10,000, but today it has risen to $10,000 to $15,000 due to increased marketing spend, team efforts, and renovation costs. By offering incentives like stay bonuses, businesses can save money and retain tenants, making it a more cost-effective solution than dealing with a vacant unit. This expert advice highlights the importance of understanding your market and utilizing data to make strategic decisions in managing risk.
Real Estate Risk Management: Effectively managing risks in real estate involves using data and expertise to retain good tenants, offering incentives, and focusing on overall returns. Operators should hyper-focus on strengths and diversify for passive investors.
Effectively managing risks in real estate involves using data and expertise to proactively retain good tenants and minimize turnover costs. Offering stay bonuses and implementing stacking methods are practical ways to incentivize tenants to renew their leases, saving time and resources for landlords. Understanding the specific risks and opportunities in your operating environment and focusing on maximizing overall returns is crucial. Diversification is important for passive investors, but for operators, it's essential to hyper-focus on strengths and avoid being distracted by too many projects. Lastly, always invest only with money you're willing to part with, as real estate investments carry inherent risks.
Real Estate Operators: Thoroughly vet operators and teams before investing as they significantly impact investment success and potential losses. Prepare for potential losses and minimize risk when starting out.
Real estate investing involves risk and there's no guarantee of returns. Ashley emphasized the importance of thoroughly vetting operators and teams before investing, as they are the key difference-makers in successful investments. She also advised investors to mentally prepare for potential losses and to focus on minimizing risk when starting out. Ashley's insights underscored the importance of learning from both wins and losses and gaining experience to make informed investment decisions. Overall, her advice emphasized the importance of due diligence and a long-term perspective in real estate investing.