How to reduce risk

Question

Hello everyone, I've been looking into investing in real estate for some time now. I don't have money to invest so I have been reaching out to people I know who would like to invest their money. Questions I have been getting is how am I going to reduce risk and not lose their money incase something happens to the property like a fire or a flood etc.

Any investors out there willing to give advice, will be much appreciated.

Thank You!

Any investors out there willing to give advice, will be much appreciated.

Thank You!

Chris Seveney · Answer

@Joshua Acosta

Biggest factor to reducing risk is experience. Strongly recommend not using other peoples money to invest in real estate until you have used your own monies.

Michelle Crochet · Answer

Hi Joshua! Reducing risk in real estate investing can be done in several ways:

-Insurance: Adequate insurance coverage is critical for real estate investors. You should have insurance policies that cover property damage, liability, and any potential loss of income.

-Due diligence: Before investing in a property, conduct thorough due diligence to identify any potential issues that could affect the property's value or income-generating potential. This includes reviewing property records, inspecting the property, and understanding the local market.

-Diversification: Spreading investments across multiple properties, locations, or investment types can help reduce risk. This way, if one investment does not perform as expected, the overall portfolio may still perform well.

-Partner with experienced professionals: Partnering with experienced professionals such as property managers, real estate agents, and attorneys can help reduce risk. They can provide valuable insights and help mitigate potential issues.

-Contingency planning: Have a plan in place for unexpected events such as a natural disaster, vacancy, or loss of income. This can include having adequate reserves and contingency plans in place to ensure the property can continue generating income.

By implementing these strategies, you can help reduce risk and provide reassurance to potential investors! :) Hope this helps.

Bryce Jamison · Answer

You may be putting the cart before the horse. If I were them my concern wouldn't be with a fire, it'd be with your lack of experience and skin in the game (money). By no means do I want to disparage or discourage you, but the risk that you invest in a deal you thought was good but isn't, don't run your numbers correctly, under estimate repair & insurance cost, over estimate rent, misunderstand local rental laws, or struggle to find tenants is by far greater than the risk of a natural disaster type event if you're still new to the industry.

If I were you I'd start by myself by either house hacking, or buying a few modest single family homes. After you've done this for a few years you'll learn so many lessons and new skills, and you'll have credibility when asking people for money to invest. You can use this time to continue your education by reading forum and blog post of BiggerPockets, listening to their podcast, reading books, and going to local meetups.

Again, I don't want to discourage you, but based on your post there seems to be a lot of unnecessary risk for them and you.

Terrell Garren · Answer

Regarding fire or flood - Insurance.  There are 100 other ways to lose money in RE investment. Free education is here, YouTube, google, ChatGPT, books, etc.  Maybe learn enough to ask specific questions.

Andrew Syrios · Answer

The most important thing you can do is really focus on due diligence. I wrote a long piece on due diligence a while back for BP that you might find helpful: https://www.biggerpockets.com/...

Nathan Gesner · Answer

I'm with Bryce. If I am going to invest with someone, I need to see that they are putting their money where their mouth is, or that they have a long history of success to back up their word.

Eliott Elias · Answer

You mitigate risk by understanding the risk. You understand the risk by learning the hard way. You are going to have to accept the fact that you cannot mitigate all the risk. All you can do is gradually get better over time.

Joshua Acosta · Answer

Thank You, it's not discouraging me, if anything, I'm inspired to learn more. This is something I've been wanting to get into for sometime. Any feedback is good feedback

Joshua Acosta · Answer

Thank you, much appreciated

Joshua Acosta · Answer

Thank You Michelle for your input and thoroughly explaining. this is really helpful and I will keep all of this in mind when I start on my first investment. There's still much I need to learn, Enjoying the process, nonetheless.

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