Commercial Real Estate Pro Network

Darrin: [00:00:08] Brian Schaffer, what is the BIGGEST RISK? [00:00:10][2.4]

Bryan: [00:00:12] To me, I mean, you know, we are in the risk reward business. I mean, people get loans based on the level of risk. If it was a very risky loan, you pay twelve percent. If it's not such a risky loan, you pay three or four percent. So we're always looking at risk. 

But if I look at a more global risk to my business and really to the market as a whole, I think you've got to think about the economy and what causes a real estate downturn and what influences a market to go from being a very hot market to a very cold market. And really its activity. So when activity dries out, when people stop buying properties, people stop selling properties and people have fear when people are thin or they don't move 

And as you said, like the insurance provides a level of safety for those people so they can sleep at night and say, you know, if my property burns down while I'm sleeping. I'll be OK because the insurance will cover that. And then I think when you look at the real estate market, the risk is really people becoming too fearful that that is no longer good to buy, that there's there's no upside in buying. And that can happen really quickly. It's you know, 2008 was probably the best and the worst real estate market in the last 40 years. So, you know, you had everything peaking out and reaching its height. And then all of a sudden people's attitude changed and they decided that there was too much risk to keep buying properties and keep growing their portfolios. And that risk, the impact of lenders who then took a step back and said there's too much risk to lend. And then once they said there's too much risk to lend, it froze the entire market. So I think everybody's got a plan for and know that there will be a day again where risk outweighs reward. And you have to plan for that, just like you buy insurance. You've got to have a margin of safety. People that are well capitalized, I've never seen lose a property. But people that buy on a whim and, you know, aren't sure what's going to happen tomorrow and don't have the money if there is a bad year, get burned when there is a bad year. So to me, the BIGGEST RISK is that that that change in the marketplace, that freezes everybody. But the solution to it is just like buying insurance is a solution and knowing that if there's a buyer, you'll be saved. The solution to being a real estate investor is balancing your capitalization with the amount of your outflow. You should never be at a point where if something goes wrong tomorrow and it can't be fixed for six months, that you're out of business.