Giving a timeless piece of investing advice, Warren Buffett once said, “The first rule of investment is don’t lose money. And the second rule of investment is don’t forget the first rule. And that’s all the rules there are.”
But how do you ensure that you don’t lose money?Real estate investing involves risk. Any investment involves risk.That’s why careful research and risk assessment are essential.
It’s impossible never to lose money, but you can reduce your risks with a few simple steps.As physicians, we are used to taking calculated risks. We take risks in our day-to-day work at the hospital. We took risks to get to where we are now.
We stayed in school several years longer than friends to achieve our career goals. As we worked, we hoped that we would get through residency and pass our boards so we could pay off our six-figure student loans. And now, some of us take carefully calculated risks with our patients’ lives each and every day.
It’s been said that a great sponsor can salvage nearly any bad deal, but a poor sponsor can tank any deal, even a great deal. It’s similar to if you were undergoing surgery.
Answer the following questions by researching the sponsor’s track record:– How many deals have they done?– How many deals have they exited?– How many years have they been putting deals together?– What were their best and worst deals?
All you have to do is think back to the origins of the 2008 financial crisis to realize the role financing plays in real estate. Bad real estate debt that couldn’t be paid back created a domino effect that ultimately affected the entire economy.