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There's always going to be a certain amount of risk when investing in real estate. While you never will completely eliminate risk, you can mitigate it. Understanding risk management is crucial to building a lasting portfolio.
The Importance of Mitigating Risk
Developers and investors can avoid many financial risks altogether. If you wanted to avoid potential drowning lawsuits, you would not develop or buy properties with swimming pools. Most choices aren't easy, though, especially regarding market risk within commercial real estate analysis and investments. This is the difference between risk avoidance and risk reduction. This type of real estate risk is inevitable because the market is constantly changing.
The real estate market is cyclical, meaning it's not a matter of if market conditions will change, but when. Certain economic circumstances, nationwide and worldwide financial conditions, interest rates, unemployment numbers, plus supply and demand will all impact the profitability and success of a specific real estate investment. For this reason, investors must keep an eye out for any changes happening in the marketplace.
When the risk is high, you need to exercise command over what you can control and demonstrate this capability to your team, financial partners, and insurers.
Reducing Risk While Improving Your ROI
Risk reduction deals with mitigating potential losses by reducing the likelihood and severity of a possible loss. Essentially, your goal should be to exercise command over the things you know you can control in preparation for project changes that you can't.
So when you're in the pre-development phase of the project, you need to be sure that your available data informs your decisions. Unless it's your first time investing in and developing real estate, you have experience you can draw upon to inform decisions before you break ground. The trick is not to vaguely recall how previous projects went but to use modern technology to aggregate that data and draw conclusions from it. This can be anything from what vendors to work with or past cost data informing your forecasting.
When your use complex data to back your decisions, you're going to reduce many issues that stem from project assumptions, something that developers and investors tend to put too much stock into. Then when economic conditions change overnight, you'll have accounted for that uncertainty so that your plan isn't derailed. Technology is the key to project risk reduction.
Improving Your Commercial Real Estate Analysis & Investments Decisions
To maximize the chance for a positive return in your commercial real estate endeavors don’t simply try to avoid risk but identify it in the pre-development phase and proactively learn all you can about current market conditions.
Being proactive and educating yourself about where risks lie can save you a plethora of time, money, and stress. Being proactive and educating yourself means you will know if a project is risky or not.
If you're not yet looking into Artificial Intelligence (AI), you should be. Technology that incorporates AI can constantly comb through your data and uses industry best practices to serve up actionable insights on your project that'll help you keep costs low.
The right software can identify trends, challenges, and opportunities in real-time. It makes it possible to see what is happening across your real estate portfolio. Simply put, you can lower the risk on your projects and get more predictable outcomes.
Learn More About What AI can do for Your Real Estate Investments
A few short years ago, almost no one would have thought of the commercial real estate industry as innovative and welcoming advanced technology. Things are very different now. AI will soon cease being a competitive advantage and become a must-have capability.
One of the best outcomes of AI is to put it to use in helping you stay ahead of the curve. It is excellent for allowing investors and developers to make savvy business decisions within the commercial real estate sphere. Investors use AI for financial loan modeling, eliminating data entry and manual analysis, predictive modeling on portfolio performance, and more.
Make today the day you learn more about how you can use AI software to leverage data, visibility, and early warning systems to reduce risks proactively. The Ultimate Guide to Commercial Real Estate Technology is available for download now, where you will learn all about the latest, exciting new technology. It describes how teams like yours can leverage AI to add efficiencies and reduce risks in further detail. Download your copy today!
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