A few years ago, I had a chance to attend a roundtable conference with local business owners. My intention was to meet with at least 3 people who might be able to help move my business forward, either through identifying a borrower, finding a really good real estate deal, or to possibly discuss investments available within my business at the time. In other words, I was looking to raise some capital for some deals.
Thankfully, I was able to talk to at least one person about investing some money, and as I described our business model to him, the topic of risk came up. He said to me, "Isn't that risky?"
Now, personally, I love when this topic comes up because it allows me to put on my educator hat and talk about the difference between “risk” and “risky.” Everything has risk, I told him. There is risk in you walking down the street with your net worth in your briefcase. There is risk with just putting your money under your mattress or in a safety deposit box. So, in essence, the amount of risk may then lead you to determine if something is “risky.” To this, he agreed.
I then asked him, "If you knew the downside was covered, how many deals would you get involved with?” In other words, if you had a very high comfort level for covering the downside, would you still consider a deal to be “risky?”
I shared with him that “risky” is associated with lack of the right financial education, and that the banker's mentality is to cover the downside first. We manage risk by studying it, managing it, and covering it as much as possible. While it is impossible to eliminate all risks, if we can manage these risks to the largest extent possible, we can maximize profits by rarely losing.
This is what I call the “Banker's Code Investment Strategy.”
Smart Real Estate Investments with Minimal Risk
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