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a large tangible asset attached to the venture that can be liquidated to recover the investor’s capital.

Again, we come back to elements under control and elements out of control. When raising capital from an investor or considering a “risky” venture, take them through the following scenarios to asses if the venture is right for them: the best case, the realistic case, the worst case, and the nightmare case.

As for myself, I have a low risk tolerance, and I always say to my capital partners, “If you are OK with the nightmare scenario, then we are OK to do business.”

At the end of the day, risk is all about emotions. If we are emotionally OK with our degree of control and how the nightmare scenario would affect our life, then we are ready for the risk. If you cannot handle the elements that are out of control and would not be able to live with the nightmare scenario, then the risk is not for you. There is a famous saying “Nothing ventured, nothing gained,” and we must all take calculated risks in our pursuit of success. The question is, after exploring a few definitions of risk, How do you personally define risk going forward?

Your personal definition of risk is extremely important because it will define which risks to take and which ones to avoid. To paraphrase Sun Tzu, know yourself and know your enemy, and you will be victorious in every battle.

Action Step: Write down three elements that you must be in control of when investing in a real estate deal. Also write down three elements you are comfortable leaving outside of your control.