BIGGEST RISK with Travis King

J Darrin Gross

I'd like to ask you. Travis King, what is the BIGGEST RISK?

Travis King

It's a great question. It's actually really hard to try to encapsulate it in one thing, so maybe I might give a multifaceted answer, if that's okay with you. One thing I would say that is paramount in real estate, and I alluded to it earlier, is the only real way I know to lose money in real estate is to lever inappropriately. So leverage at the end of the day, that's how you lose control of your properties, right? And that happens. So then I you peel that onion a little bit and say, Okay, well, how does that happen? Right? How do you run into problems there? And I think there's two main areas that I would focus on as kind of sub points. Number one is going to be making sure that you're checking your assumptions and making sure that they stand up in a lot of alternative scenarios you might not have considered, right? A perfect example was back in, remember, during the housing bubble of of 2008 when everything popped, they realized at one point that there was no way to even show you know, potential negative drop in housing values, right? That's a great example of just a a glaring error of saying, Well, you got to be able to test some of your assumptions. And I think you really need to beat them up and test them under old under ultimate scenarios that could happen. Black Swans do happen, right? And I think that sometimes it doesn't even need to be a black swan. And we've seen things where we've preached to folks over and over to say, in multifamily as an example, if you were to go through and change your rents just by 10 or 15% on a multifamily property. And then, you know, the cap rates move, you know, a little bit. You know, you have cap rates move 50 basis point because the markets in a little bit of turmoil, right? And your occupancy gets hit by five 10% just all these things are fairly small changes. It could be 15 to 20% of the value of the property. So if you're if you're buying something, you know, that's very highly leveraged, you could find yourself in a very difficult position very quickly. The second thing I would say is be careful who you're doing business with. A lot of times it really comes down to making sure you have the right partners. Some of the biggest problems I've seen happen are are doing business with the wrong people. And I think that that's where you run into problem, regardless of what your dollar of what your documents might say. If you're not dealing with trustworthy people that are putting integrity first and foremost, that's an easy way to get into trouble. So eyes wide open on who you work with. Do your do your background checks, talk to people, get references, referrals. Move slowly. I think you do those two things together and stay conservative in your capital structure. You avoid, you avoid a lot of pitfalls.

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