By Jennifer LoConte
Whether you’re a seasoned real estate investor or a newcomer interested in jumping into the investing world, it’s important to know the risks of real estate investing and how to avoid them if you want to be successful. Don Wenner, CEO and President of DLP (Dream Live Prosper family of companies) offers a unique opportunity in this free webinar, “The Keys to Mitigating Risk When Investing in Real Estate.” You’ll learn valuable investing and risk management lessons from someone who knows the ins and outs of the investing world. With more than 10 years of investing and real estate experience, Don and his team of experts at DLP can guide you towards making the right decisions in order to achieve and enjoy the benefits of real estate investing.
“At DLP Capital Partners, we approach real estate investing and risk management with these guiding principles: No principle losses to our investors, ever; generate consistent, fixed returns month in and month out; and repeat rule number one.”
Don defines risk as the loss of capital that you invest and, when investing your hard earned money, the most important goal is to mitigate risk in order to yield the best returns.
As an investor, you need to know the overall risk of the investment. Certain strategies carry unique risks. For example, investing in retail commercial real estate is high in risk due to the current cultural drive towards purchasing anything and everything online. This makes it difficult to find long-term retail tenants for your investment. A second example is a fix-and-flip investment strategy. The risk in this example occurs if the property doesn’t sell for enough to make a profit. Or, if you buy, renovate, and rent the property, you run the risk that rental income won’t be enough to pay back your loan and deliver a profit.
Macro and Micro Market Considerations – There are several questions to consider in both the macro and micro market. In the bigger picture, what could happen in the overall economy and in the actual investment segment? For example, how do interest rates affect the market in multi-family real estate? At DLP, we strategically invest in multifamily and focus on Class B and C properties because we know that we can generate excellent returns for our investors while providing an affordable rental solution for people who cannot afford Class A luxury apartment rental rates.
In the micro market, meaning the regional and local markets, you need to consider risk factors like employment and population where you are investing. At DLP, we target specific markets that have a substantial increase in population and employment; thus requiring an increase in the need for housing.
Asset risk is the actual property that you are investing in, for example, the retail commercial real estate discussed above or a multi-family property. In order to mitigate risk, it’s important to only buy good deals at good prices. It could be a great property, but if you pay too much for it, you’re exposing yourself to risk. Don comments, “Do not get emotionally attached to a deal, because paying more is not winning. If the deal doesn’t work then the deal doesn’t work.” Be conservative and realistic in your expectations, universally. This includes factors such as rents, expenses, and if you sell the property. Additionally, it’s important to be aware of potential asset issues including the condition, structure, code, sewer/water systems, and crime.
Assessing manager risk is essential whether you are investing with a person, an entity that controls your investment OR if you a managing the investment yourself. If it’s the latter, you need to be honest about whether you have the time, capital, and knowledge to perform successfully.
If you are hiring someone to be responsible for the asset’s plan of execution, you need to be sure it’s a good fit. Be sure that you are investing in and with good people that you can trust in good times as well as tough times. For example, if you are choosing to invest in a real estate company that is very new at building townhomes, they carry the risk of having little experience. They may have a great strategy and it looks good on paper, but because they are not experienced, there are bound to be changes, especially with costs they may not have foreseen. This will surely affect the profitability and the returns from the project. Additionally, be sure to know how long you are committing and read the fine print.
DLP’s Answer to Risk in Real Estate Investing
At DLP, we choose to invest in B and C class multifamily investment properties. We have a proven strategy to deliver consistent double-digit returns to our investors. We hope you’ll join the conversation so that you can learn more about our formula for success and a greater detailed discussion on how to mitigate risks of real estate investing.