The 4 biggest risks in real estate investing, and how to mitigate them

The risk inherent in real estate investing scares many potential investors away from the industry. But successful investors take these risks all the time. They do so because they understand them, recognize indicators elevating them, and know how to prepare for them should they realize. In this episode, Michael gives his take on the 4 most common risks in real estate investing and how you can protect yourself against them. --- Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Pierre: Everyone, welcome to The Remote Real Estate Investor. I'm Pierre Carrillo and today I'm joined with   Michael: Michael Albaum.   Pierre: And today we're gonna be talking about the types of risks that arise in real estate investing and things we can do to mitigate them. So let's hop in.   Alright, Mike, here we are.   Michael: Here we are.   Pierre: Yeah, we're missing Tom and Emil today.   Michael: Only physically, but like not actually missing them?   Pierre: Yeah, exactly. They're just not here.   Michael: I'm glad they're gone.   Pierre: That spoke to no emotional…   Michael: Just kidding, we love you guys.   Pierre: A little bit.   Michael: We miss you.   Pierre: So the way this will work is I'm going to just run by some common risks. I want to get you to talk to me about what they mean for your bottom line and ways that we can avoid them or, you know, protect yourself from these things.   Michael: Yeah, totally. It sounds like a great topic. And it's funny when I used to work as a professional fire protection engineer, risk mitigation was what we did we engineered against losses. So now I'm just doing it in the real estate side of things.   Pierre: And that's why I'm on this side of the conversation. All right.   Michael: That's awesome.   Pierre: All right, let's talk about lack of liquidity. What does that mean? Why is that risky? And what can we do to mitigate that?   Michael: Yeah, lack of liquidity is basically not having a lot of deployable, cash on hand ready, and able to be used for things that come up, like a big repair a big capex item that you weren't expecting for, or a big one that I think a lot of people don't think about as an insurance premium. If you have a $2,500 deductible on your policy, and a tree falls on your house, and the roof damage is five grand, you're on the hook for the first 2500. And so being able to have at a bare minimum, your insurance deductible on hand on a moment's notice, I think is really important.   And so it's simply not having enough cash. That can be in the bank, you don't have enough cash, another great place where you could store is in a brokerage account. If you've got a $50,000 stock account, and you know, your your kind of biggest exposure is five to 10,000, you're probably in a good place. If you've got a $5,000 stock account, and your biggest exposure is 5-10 grand, maybe you you don't want to keep those dollars in a stock account, which could essentially go to zero in a really bad bad market turn. So knowing where your liquidity is, how much you need, and how safe it actually is, I think is really important.   And so another great place that I've seen people have access to liquidity in the form of a HELOC on their primary residence. If you can write yourself a check for $10,000 Tomorrow, because you've got a $50,000 HELOC, that's a pretty safe place, in my opinion. So I guess in the hierarchal order of safety for where you could keep a reserve or where you keep some liquidity is cash in the bank. HELOCs are great stock market account would be kind of your, your proba