Real Estate Investments - Just How Risky Are They?

by Eric Himebaugh

Real Estate Investing Just How Risky Is It? What Can You Do About it? What's the real scoop? Why are there so many real estate investment seminars making the business look easy, while real estate investors I know are experiencing something more involved?

It does not matter whether I am listening to radio, late-night TV or Saturday morning infomercial, I can always discover a real estate program promoting fast ways to make big money, and I wonder if I am missing out on something? So what is going on? Am I overlooking important learning opportunities with these money-making training sessions? One is left with this message: If it is this easy to make money in real estate, then why isn't everyone doing it?

It appears is that we are receiving the upside of the business: good deal making techniques, and the periodic great deals. We need to realize the limitations of what we are seeing and to understand what we are missing with many of these training seminars. That is not to say that there isn't money to be made in real estate and that one cannot make a good living with real estate investments. There are great techniques for acquiring and developing good investments on a number of levels. And the business can provide you much satisfaction and freedom. However, you can trust that there is more to the real estate business than what is presented in the typical real estate seminars.

The more successful businesses are structured and have developed business models (methodologies) to work by. They provide controls over accountability, guidance, risk management, legal protections, and quality assessment (assurance) to ensure that their products and services meet their customer needs. We have all heard the comment, "Oh, you are in real estate. Isn't that kind of risky?" The answer, of course is that it can be, and for many, it often is! Does it have to be so risky? No! But, have you ever attended a real estate seminar in which the presenters discussed risk management or assessment? Why not? Doesn't it apply?

Real Estate gurus often tell their audience what they want to hear, rather than the broader picture of what they may need to know. We all need to know the positives and the value of good real estate techniques. However, isn't there a need to provide a more complete view of real estate business, including asset management, standard business practices, and checks and balance, not just investment techniques alone? For example, would you appreciate some advice on effective property management? Don't you want to know more about what to do in tough times or when you are getting in over your head; how to advert bad decisions, and how to expand your business and how to protect yourself? Every business person has good and bad times. But not all businesses go under because of hard times. Most of the businesses I know deal with risk management, either on a formal or informal basis.

My Recommendations: Here are three (3) key things you should develop for your business. While they apply to all businesses, they particularly apply to real estate:

A. Vision for your business

Martin Luther King said, I have a dream! Likewise, you need a dream and a vision of what you want from your business. Writing it down and keep your vision honed.

B. Well-defined Business Plan (cradle-to-grave)

If you don't have a plan for your vision, how are you going to have your vision come true? Your plan should include a description of your objectives and actions for the start and completion of each major program or project you are doing.

C. Risk Management Plan

It is your duty to minimize your risks, and maximize your successes. It is much easier to make changes in direction early on, before you have to pay the price in dollars later! Risk Management is about diversifying your options (not putting all your eggs into one basket), identifying best and worst case scenarios, reviewing your performance regularly, having a backup plan, when your master plan fails, and finally learning from your mistakes!!

A) Create a Vision for your business You create your vision through the following:

Values you uphold for your company

Purpose of your company

Goals which detail how you are going to accomplish what you want to do.

Taken collectively, these three provide you with your Business Vision, or Mission. After think about these three areas, you should write out your mission statement and your goals and objectives for your business. A business vision is not cut in stone. As your business grows, so will your vision.

B) Structure Your Business How do you start planning your business and identifying your activities? You can take classes, read books, and talk with professionals and mentors. To ensure that you have thought of all issues regarding your business set up, it is a good idea to write down these 6 interrogatives to help you capture the whole of it:

Who, What, Why, When, Where and How

All six can assist you with your planning. For example, in general, you will want to define Who is involved, Why you are doing the business, What you want out of your business, How you plan to get there, When you plan to start (timetable), and Where (location) you expect to operating your business. Below is an example of a structured business model. How detailed and thorough you are in its use, depends upon the maturity and size of your business. You will want to define your tasks and detail to the degree required to manage your business. However, the four Phases are generally accepted categories. For more information, you can, of course, attend classes, go online and search for business models or business methodologies, or consult our web site www.globalrealestateinvesting.com later:

I. Analysis Phase:

- Define your vision and mission

- Define your objectives, according to your mission

- Identify your resource requirements (people and materials)

- Identify real estate for your business development

- Define a risk management model

II. Design Phase: Define a plan or prospectus on paper (include marketing and staging approach as part of the design)

Select real estate - determining current and future value of investments for purchase or sale, according to your plan

Collect data on required resources (people and materials) and their costs

Create a total cost estimate for each effort (often called a Work Breakdown Structure-WBS).

Review the labor and cost estimates with other key members for confirmation, make modifications to your estimates, as necessary.

Consider developing your real estate in workable phases

Establish checkpoints to review performance, and test your results with the market

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