089: Apartment Investing – A Risky Business?
Is apartment investing risky? And if it is, just how risky is it??? 🤔🤔
My poor dad often said, “investing is risky.” But my rich dad said, “being financially uneducated is risky!”
We don’t know about you, but what risk are you more willing to take?
You should know that there are two big risks that exist in real estate investing – or any investing for that matter. The first risk is asset class risk and the second risk is execution risk. 🤓🤓
You should also always be asking yourself important questions. Questions like: does investing in this asset class actually work? Has it been proven historically to create generational wealth? And am I working with the right team that can execute the business operations needed to get me to my target returns?
A few months ago, we were chatting with a friend about his investment strategy and comparing it to ours. We’ve been friends for many years but now we sit at very different places financially speaking. He’s taken quite a few shots in the dark hoping to make it big and none of them really panned out.
Ultimately, the discussion landed on the idea of risk, risk taking, and our willingness to acquire risk. You see, quite often when people start investing, they tend to overestimate potential return and underestimate potential loss. This is especially true when an investment promises a disproportionate return. 👀
We know, because we also get excited and wrapped up in the dream of hitting the jackpot. 🎲♠️ But we hate to break it to you – leprechauns aren’t real, neither are jackpots at the end of a rainbow, and most definitely neither are most “get rich quick” schemes.
When you take a closer look at these so-called home run deals, you can see that if you are right and you win big, the returns can be astronomical, but when you lose, you can also lose massively as well. 😨
A lot of times people lose context and fail to recognize that the probability of them winning that jackpot or the number prize on the lottery ticket is minuscule. Yet they still cling to the dream and the idea that they will be the lucky one, the chosen one, etc.
👉 The sad part is that in doing so, they dismiss the 100% return in 5 years (i.e., 20%) solid returns that you can get in a hard asset class like multifamily. Instead, they chose to buy into trends or what they read on an Instagram post like Dogecoin or NFTs that they really know nothing about.
Why should you care?
For starters, this is an important topic all investors should evaluate when deciding what and with whom they will be investing. This is where we differ from our friend we mentioned earlier when it comes to investing. The Kitti Sisters like to invest in asset classes that have the least likelihood of failure. ✨✨
To put this another way, we like to go after investments that have the lowest risk profile available – so if there was a failure, it would be the failure in execution. By doing this, it means that the only variable that determines your success or failure is your execution of the business.
That’s a lot of pressure, right? Not really‼️
If you think about it, this means that you will be better served investing in asset classes that fundamentally address a real need in the market instead of going for the newest and latest glitzy investment strategy out there. 😊😊
Multifamily apartments address the human basic need for shelter
Have you ever heard of Abraham Maslow? If you haven’t, he was a psychologist who is best known for his development of a system of hierarchy of human needs, which essentially lays out necessary elements for human health and success, starting with the most basic, like food and water, and progressing upward towards ego and self-actualization. 😉😉
We’ve all learned a lot the past few years thanks to the pandemic. But one of the most basic levels of human need, according to Maslow, is the need for shelter. The COVID-19 pandemic brought a lot of suffering to all of us, but one thing it also did was it provided a massive case study, in the tune of billions of people worldwide, that shelter is a fundamental need.
Shelter 🏡 is so necessary that the government was willing to print trillions of dollars and literally mail out checks to everyone. So you can see why we like to focus on this type of investment. It allows us to quickly identify any failures, and if it doesn’t work, it’s not because of the asset, it’s because of the way you executed your investment strategy in the said asset.
We all can afford to take some small investment setbacks from time to time. For example 〰️ maybe your return was 95% instead of the expected 100%. However, if you don’t first answer the two risks questions we spoke about at the beginning of this show, then you are taking undue risks that can result in not only a total reset of your investment dollars but most importantly, lost time ⌛️.
✔️ When you keep resetting to zero, compound and accumulated wealth will start to feel like standing on quicksand. And you may not have enough time left to start over. 🙏🙌
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