There is a common misconception, according to public opinion, that real estate investing is nothing more than gambling on which way the market is headed. There are some investors who do nothing more than speculate, but for the most part, investing in real estate is no different than any other investing platform. You rely on data, look at recent trends and get as much information as you possibly can before making any decisions. At the very least, educated investors are making informed decisions that mitigate risk.
There is a certain degree of gambling associated with any form of investing, but its impact is dependent on the individual investor. That being said, this does not mean that you should not look for opportunities that offer the best risk/reward scenario for your risk tolerance. Taking an educated chance on a property is completely different than buying blindly and hoping to turn a profit. The best investors look for an edge and take advantage of it in the right situations. They do not chase money that is hard to obtain. More importantly, they do not put their money at risk if they aren’t sure that they have an advantage.
You can win five hands of blackjack in a row, but if you bet it all on the sixth and lose, you will not have anything to show for it. The same concept can be applied to real estate investing. You can make money on a few properties a year, but if you do not put in your due diligence, it could wipe away everything you have worked for up to that point. There is nothing wrong with walking away from a deal that you do not have complete confidence in. When in doubt, it is OK to leave it out.
With every investment, you need to consider the risk vs. reward. Not every property will offer the same upside. It is tempting to look at what the ceiling is with every property, but it is also important to look at the floor. What is the worst case scenario with the property? In most cases, you will have a good idea of what the pitfalls and potential problems are before going in. On the other hand, you may not know what you are getting into with a tax lien auction. Your reward can be much higher, but your risk will be higher as well. If you are not comfortable with possibly losing money or making a small profit, these properties are not for you.
A small profit always beats a loss. It may not be exciting or popular, but small gains still add up. If you talk to any investor who has lost money on a deal, they will tell you that they wish they could have hit a single instead of swinging for the fences. Hitting a home run is nice, but doing so is less likely to happen than a single. Losing money can set your business right back to square one. There is nothing wrong with bringing your chips to the cashier, however few they may be.
