Читать книгу Money People Deal - Stefan Aarnio - Страница 49

Risk Tolerance: How Do You Personally Define Risk?

47

1)

My definition of risk assesses your degree of control in a situation.

2)

My definition of risk assesses your emotions and how you feel about your level of control.

Notice that I eliminate “probability” or “chance” from my definition of risk. In my world, actions and options are more important than probability. No matter how bad a scenario gets, there are always actions to be performed and options that can be explored. Probability and chance come from past data, and may or may not apply to the present or the future.

Naturally, there are things that can happen outside of my control, and I must address and mitigate all contingencies before proceeding. Should something outside of my control become an issue, the question is: how do we recover from this position? In my world, I understand that in life and in business, plans fail, people fail, systems fail, and markets fail. And what is more important than relying on all these imperfect elements is to understand how to recover and “fix” the failures. I build failure and multiple contingency plans into my ventures and understand that failure and recovery are part of the game.

In real estate, between 5 percent and 10 percent on the balance sheet of a buy and hold will be factored in for vacancy on multifamily buildings. On a buy, fix, and sell, at least 3 percent will be factored in as a “sales discount,” meaning we cannot plan on selling at full price. Restaurants and traditional businesses will build theft into their balance sheets. Sophisticated business people understand that failure, loss, and recovery are all part of the game and factor it in to their projections and balance sheets in advance.

My definition understands that there are elements in our control and out of our control. There is no luck—only degrees of control. If you are OK with your degree of control, then proceed with the risk. Of course, there is always that moment where we must take a “leap of faith,” and no amount of due diligence can protect us from the elements out of our control.

What is most important when entering an endeavor with risk is to ask yourself, How do I escape if I want to exit? For myself, one of the reasons I love real estate is that no matter how bad the deal goes, there is always