Today, I’d like to CONTINUE OUR VIDEO SERIES on discussing the important topic of Should I Invest in My Friend’s Real Estate Deal?
First, I’d like to discuss Risk & Returns: Risk and returns are inextricably linked. This is a timeless investment axiom. If you want to achieve the “mid-teen” returns that your friend is advertising, you will need to take a lot of risk with your money. In plain English: Higher risk means you have a higher probability of losing your money. If your friend is aiming for such high returns, then he intends to take a lot of risk with your money.
For some reason, many high-income individuals think they have found the silver bullet investment of high returns and no risk. This doesn’t exist. If you want to make risky investments, then it should only be done with a small portion of your portfolio. That way, in the likely event that this deal goes belly up, it won’t derail your finances.
Next point is that Your friends are irrelevant: Always remember that some of the most sophisticated people are also the worst investors. Success in one area of life does not necessarily transfer to other areas. While your friends may be successful in their field of expertise, it does not make them knowledgeable about evaluating real estate opportunities. Furthermore, they may have different goals, family dynamics, and financial circumstances than you. In short, what your friends are doing with their money should not be part of your due diligence process.
In my next video I will discuss two other aspects of this question to help assess whether the “deal” makes sense.