Page 179 - Trump University Commercial Real Estate 101

Take Onl y Intelligent Risks

You may even owe more on the property than it ’ s now worth. If
this is the case, you will have to sell the property and come to the
closing with additional money out of your own pocket. Not good.
If property values have not tanked, you do not necessarily have to
sell the property at the end of seven years. It ’ s common to refi nance
the loan, paying off the original debt and putting in place perhaps
another balloon mortgage.

Insurable Risk

You can insure your property against a whole family of risks, including

fl ood, fire, and storms. Insurance policies also include manmade situa-
tions, such as being sued by tenants or employees for accidents that
they claim occurred on your property.
This is a cleaner type of risk, because you can simply buy the insur-
ance to protect yourself. Insurance companies will base the cost of that
coverage on the statistical probability of your claiming a loss, based on
large amounts of historical data.

Diversifi cation

Fortunately, you have several tools at your disposal to minimize these
three forms of risk. The primary tool is diversifi cation.
It ’ s been said that the worst number in business is the number one .
If you have only one supplier and that company implodes, you ’ re in
trouble. If you have only one product, or only one property, then you
are pinning too much on that one source of your livelihood.
In real estate, it ’ s prudent to diversify by property type and location.
When the economy is soft and retail is suffering, it ’ s often the very time
when multi - family properties take off. After all, job losses often result
in foreclosures, and apartments become a fall - back choice for housing.
Similarly, when one part of the country loses manufacturing jobs
to overseas factories, another part of the country is booming with oil
industry jobs.

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