How Do you Manage Fear vs Risk with Your Investments?
It’s sometimes very difficult for new investors to distinguish between fear and risk. If I did not manage my fears on real estate investing, I would not be where I am today, leaving a well paid six figure salary to be a real estate investor full-time.
Fear is an emotional response and in many cases will not go away regardless of the facts presented to someone. Try telling a child that there is no monster in the closet and even showing them the empty closet, they may still whimper and be scared of that closet even when no monster has ever appeared. Or for many adults, try letting them know that the odds of dying while skydiving or bungee-jumping is far less than just buckling up and driving to work. The vast majority have no problem driving, but would not even attempt a bungee jump (even if they really wanted to try it). In fact, you are 15x more likely to die driving vs skydiving, and 75x times more likely to die driving vs bungee jumping. Fear is essentially a limiting belief that unfortunately affects most of us: We make our own conclusions without knowing what the outcome will be. In essence it is very easy for us to defeat ourselves before trying or knowing the facts.
Risk on the other hand, could be calculated and mitigated. In all of my investments I look to profit in good times or in bad; purchasing properties that provide a steady stream of income regardless of its value. But through solid economic indicators, these properties are in areas poised for growth as well. Risk comes down to probabilities and confidence. Stocks and the financial markets have much more to do with consumer confidence rather than the actual performance of a company. This is why you could have daily fluctuations in equity markets even though there is no new information about the company. It is just one of the reasons why the stock market historically is more volatile in comparison to real estate, and typically not something you as the investor could do anything about (other than hope the share price will provide profit in the long run). By contrast, in real estate. risk can be mitigated by economic indicators and you have full control in what you can do with the asset in most cases. The two main risks I hear from new investors is:
- What if there is a correction in the market?
- What if we do not have tenants to rent too?
The key with the above are that they are fears for most rather than risks that could be mitigated. In fact, there is less than 10% of our population that invest in real estate, yet it consistently provides double digit returns. If you look at the wealthy and ultra wealthy, most become wealthy through real estate, and of all of their investments they still hold, the most is still put toward real estate.
Now let’s share how the above risks can me mitigated. 1) Immigration is only increasing in Canada and has no plans to slow (just take a look at the billions in transportation scheduled for southern Ontario over the next decade). In addition, Canada is consistently ranked as one of the best countries to live in and viewed in high regard globally. 2) There is an extreme demand for affordable housing with vacancy rates between 2%-3% across Ontario alone. I actually had a bidding war for one of the units I rent out, which goes to show how much rentals are in demand. 3) When Real estate is invested in, it should always provide returns to cover all debts and expenses, as well as positive cash flow month-in, month-out. This ensures that you are still profiting, even if a market correction does occur. Please read our past blog “If you invest in real estate a market correction could be a great thing” for more information.
It took me many years to distinguish between fears and risks in my journey to becoming a real estate investor. Even once I had all of the information and agreed it was a good investment, I still waited to take action. Regardless of how you invest, try to separate your limiting beliefs from risk and educate yourself on the way something could be a good or poor investment.
Visit us at www.mkproperties.ca and our page MK Investment Group on facebook or LinkedIn to learn more about how we invest in real estate, or contact us if you would like to learn how we are providing double digit returns for our partner’s year over year.
Martin Kuev is a full time Real Estate Investor, Realtor and Investment Coach. He has worked for some of the most respected and well-known global organizations including Coca-Cola, Kraft and Nestle. With a multi-million-dollar real estate portfolio and team he built over the past decade, he left the corporate world to have the flexibility to spend time with his family (including 3 young girls), continue with his real estate investments and help others build their long term wealth.