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BIGGEST RISK with Matt Sullivan

Commercial Real Estate Pro Network

Release Date: 04/27/2021

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J Darrin Gross I would like to ask you, Cary Prejean, what is the BIGGEST RISK?.   Cary Prejean You talk about big risk for business owners,   J Darrin Gross yeah, however you want to, however you want to identify it.   Cary Prejean Well, I mean, that that's why I deal with business owners, right? The biggest risk for them is, is not paying attention. You know, not paying to get lost in the weeds, not paying attention. What's out there, not. Not, not anticipating some threat, as you call it, and they don't know they have they haven't even thought about it. They haven't even seen...

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 J Darrin Gross If you're willing, I'd like to ask you, Ashley Garner, what is the BIGGEST RISK?   Ashley Garner I think the biggest risk is to be under capitalized and and ultimately, you know, a property can go up in value, or the the P and L can show a profit, but if you don't have enough cash flow to pay the bills or make the repairs that you need to make, or make the improvements you need to make, then you you're in a tight spot, and that puts everything at risk, and that's an avoidable risk to not be under capitalized. But the temptation is so great a lot of times to say, I'm...

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J. Darrin Gross:

But if you're willing, I'd like to ask you, Matt Sullivan. What is the biggest risk?

 

Matt Sullivan 

Well, I think the answer is relatively straightforward, because from an investor's perspective, it's a real estate investment. It's an equity investment. And so the risk to the investor is that the value of the underlying real estate decays to the point where they no longer have an interest because their equity interest has been reduced. Now, as you quite rightly say, so that is the risk, how do you mitigate that risk? How do you reduce that risk? How do you remove that risk. So the way the contracts are written, there are protections in there for investors. So, when we value the property, in some cases, we'll build in a little bit of a discount so that if the value of the property doesn't go up very much, or in fact stays the same, there's still a return in there for the investors. But really, the way that we look at the risk for both sides is it is absolutely directly correlated to the value of real estate. And so there are no extraneous risks that I'm aware of, there's no sort of risks that would not be sort of directly related to whether the value of the property goes up or goes down. So that's actually quite easy to quantify. Because we know from an investor's perspective, what the returns are going to be if the property goes up, what they're going to be if the property goes down, and the same for the homeowner, if the property goes up significantly, they're going to have a bigger share of the equity that they're going to be going to be paying. If it goes down, the homeowner actually benefits because they may not have, they may have to pay back far less than they originally received. And the other thing to mention is for our business as a whole, the biggest challenge, which is a bit like a risk, is education is getting people to understand what this Anneli what this animal is, how it's not debt, how it is not too good to be true, how it is a viable financial tool. So I hope I'm not mixing apples and pears there. When I'm talking about sort of, you know, risks and challenges, but I didn't, you know, I, we are seeing far more interest and willingness from homeowners funnily enough to investigate these types of alternative funding options. So, I mean, risk is a word I, I'd like to finish on opportunity, rather than risk however, that, hey, you