Understanding Risk In Commercial Real Estate Investing

1. Understanding Actual vs. Perceived Risk

•    Differentiate between actual risks (e.g., buying with bad leases) and perceived risks (e.g., myths about certain asset classes).
•    Recognise the importance of data-backed decisions to evaluate risks accurately.

2. Evaluating Risks in Various Sectors

•    Learn that certain sectors, like the mining industry, carry higher risks than others.
•    Understand the relative risks of different asset classes, such as the stability of industrial properties versus the variability in the retail sector.

3. Risk Mitigation Strategies

•    Identify strategies to mitigate risks, such as ensuring multiple income streams, understanding tenant needs, and assessing demographic data.
•    Learn that good leases and a diverse tenant mix can reduce risk significantly.

4. Dealing with Vacancies

•    Recognise that vacancy is a real risk, but it can be mitigated by understanding demand and filling vacancies with suitable tenants.
•    Learn to research why previous tenants left and use that information to make better decisions.

5. Identifying Low-Risk Strategies

•    Storage and strata titling are identified as low-risk strategies due to their stable demand and straightforward processes.
•    Filling vacancies is also considered low-risk if you have the knowledge and resources to attract tenants.

6. Understanding Construction Risks

•    Learn that construction can be risky due to fluctuating costs and availability of trades, but storage construction is an exception due to its simplicity.
•    Understand that industrial properties are generally low risk due to government support and high demand.

7. Assessing Location Risks

•    Recognise that rural areas generally carry higher risks due to lower foot traffic, but strategic planning can mitigate these risks.
•    Understand the importance of aligning strategies with the demographic and economic characteristics of the area.

8. Importance of Education and Knowledge

•    Learn that lack of education and understanding is a significant source of risk.
•    Recognise the value of getting educated, seeking the right information, and asking the right questions to reduce risks.

9. Leveraging Data for Decision Making

•    Emphasise the importance of using data and facts to back investment decisions.
•    Learn to cross-reference information and avoid making assumptions based on unsubstantiated opinions.

10. Personal Risk Tolerance

•     Understand the importance of assessing your risk tolerance and aligning investments with your comfort level.
•     Recognise that personal mindset and confidence in your abilities play a crucial role in managing perceived risks.

11. Mindset and Education

•     Highlight the importance of a positive mindset and belief in your ability to succeed.
•     Encourage ongoing education to increase knowledge and reduce the fear of the unknown.