Tuesday, May 29, 2012

The Concept of Risk


The Concept of Risk by Mendy Lipsker{3:48 minutes to read} Today, we are talking about the concept of risk. Risk can be divided into 2 general concepts; one is gambling, and one is a calculated risk.

The word gamble means “take risky action in the hope of a desired result.” It is like a higher level of risk. When you’re gambling, you’re going purely on instinct, which is why you never hear the term “calculated gambling.”

A calculated risk, on the other hand, is where the advantages and disadvantages of the proposed deal have been carefully weighed and considered. Chances of loss are slim and, therefore, acceptable.

Some investors make their decisions based on a lot of research. They may hire an outsider or third party to do an in-depth analysis, or they may do it on their own. They use spreadsheets to figure out what everything is going to cost and how it is all going to work.

Other investors make their decisions based on instinct, but they are making a calculated decision based on years of experience and a gut feeling as to whether the deal will work out or not. They may not have been A students, but they have a way of figuring out if this thing is good or not. For them, this is not just a gamble and a roll of the dice. They have a plan and a way to realize their plan.

Sometimes, a property may have the potential to be a fabulous deal to flip or sell. The investor, however, doesn’t have the money, but it is such a good deal that they decide to take “hard money” (Is Your Hard Money Lender a “Loan to Own?) or accept high-interest rates. Sometimes, however, an investor lets greed get in the way, and that is when they have moved from calculated risk to gambling.

You have to know that you can afford the risks before entering into this type of deal, or find a strong partner who is willing to join you in the deal. If you have concerns about it, you always have a choice to forfeit your deposit and walk away—or you may find another investor who is willing to pay you back your deposit and maybe a little extra to buy you out of your deal.

If you make a decent profit, take your money and move on to your next building. If you are a strong investor and know something about the deal you are working with that makes sense for you to stay in it, go ahead. In this situation, you are coming from a place of knowledge, not risk. If you feel strongly enough about the property and could roll for more, go and do it. Just be careful that you are not becoming a gambler. Be an investor and take calculated risks.

Risk is for big girls and boys. If the deal is a calculated risk, go for it. If it is a gamble, be cautious. The worst case scenario? You simply move on.


Mendy Lipsker
Mendy Realty Inc.
822 Montgomery St
Brooklyn, NY 11213
Phone: 646.662.5454
email: info@mendyrealty.com
website: mendyrealty.com

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