How to Mitigate Risk with Commercial Real Estate

With Percy Nikora, Co-Founder

So the type of investments I look for hours fairly conservative, but ones that have a potential for upside. I don't mind having a certain amount of risk as part of my portfolio. As long as there are returns that match that risk. But, you know. But I also like to make sure that we're going in with our eyes wide open.

So if there is a particular risk in it, in a in a deal, and I think every deal has some amount of risk associated with it we try to find mitigators for that for that risk. And as long as I'm comfortable in what those mitigators are and as long as our underwriting accommodates for for some of
that, then I'm comfortable with it.

I don't mind making that investment as we don't take certain risk and not gonna get the return. Right.

Somebody once told me the safest place to invest is just put your money in a safe and dig it and put it in some hole somewhere.

But he also that's also a way to not get any returns at all. So it's a balance. And again, I don't mind taking some risk provided we know what those are going in and we try to leave a good amount of padding for for the unknown unknowns, as they like to say.

So real estate is one of those asset classes that allows you to do all of the above the while preservation, wealth creation as well as income generation.

Because especially multifamily, it's an asset class, it's a physical asset. So that that doesn't fluctuate as much as the traditional stock market or bond market.

So from that standpoint, it's fairly, fairly stable. It doesn't have in the in down markets, it doesn't have the same level of foreclosures as a single family does.

And so from a store of value standpoint, it's a good store of value, so to speak, from the wealth creation aspect.

We talked about increasing the NY and being able to get a ten fifteen fold, 20 fold return on every increase you've made to the NY or every every dollar to the bottom line. You get a exponential return. And from my income standpoint, given that a lot of these properties are occupied even as we are renovating them or post renovation, there are people living in those properties. They're paying you rent every month.

You know, obviously that rent is higher than what you're paying the bank. So any expenses or whatever the delta is then becomes your monthly income. So it's it can be an income generating property as well.

And depending on the nature of the property, you're buying some of our properties, you our cash flow very well. And so there's a fair amount of monthly income that they produce. But, you know, it's it's fairly unique in that.

And on top of that, you also get the depreciation that we touched on. So when you add that into the mix, you know, you're hard pressed to find a better asset class, in my opinion.

So looking at my portfolio, yeah, there occasionally one or two early stage investments that may have a nice little hockey stick drop there, but at the same time, there's several of them that fizzle out and die.

So, you know, when you look at the risk and reward. Real estate has been a pretty good asset class for me.

And over time I've actually shifted more and more of my network into into real estate.

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