Measuring Risk and Reward; R.E. Investing

When measuring risk we typically use the Risk = Reward Ratio. The more you risk, the more potential there is for reward.  Most investors understand this concept and use it to evaluate their investments. 

This leads me to the big question "How do get more reward while reducing your risk?”
Let me explain myself, and the market I work in.  I sell real estate in Breckenridge Colorado, which has been and continues to be a great Bull Market.  This is a highly desirable ski town market and I work with my fair share of investors.

Back to my question "How do you get more reward while reducing your risk?”  From my experiences, you can receive more reward with less risk by eliminating the uncertainties.  Risk is often a result of uncertainty. Gambling is risky and there are no certainties. How do we eliminate uncertainties?  Well, first off where do the uncertainties come from?  Many times they arise from recessions, market places, and bear markets.  Sometimes it’s whether, the the pool of buyers, or the scarcity of the product. So if we can at least reduce some of the uncertainties there is the potential for more reward!

Along with uncertainties there are different risks involved with every individual market.  I have two categories for markets there are regional markets and international markets.  Unfortunately, the regional markets seem to be suffering the worst lately. Some markets that have a good balance are not suffering nearly as much.

Now, back to my market, Breckenridge, Colorado. As I was saying this a sought after ski town, which has a considerable amount of international second homes.  There are only so many ski resorts in the world and the lack of snow in Europe last year has driven more international buyers to this market. The supply of ski resort properties is depleting while the demand continues to rise.  This market is not as vulnerable to monetary shifts.

Currently the British pound is strong, so the British can buy properties here for 1/2 price. As the globe warms, more and more people want to escape to cool, dry weather in the summer. What better place for Texas oil money? These factors increase the pool of buyers, making this market less vulnerable to general economy slowdowns. Crime, heat, traffic, crowding, bugs getting you down?  Not a problem here.

I recently listed a property I sold to a customer a year ago.  He only made it here to use his condo for one weekend last year.  In the past year he made 30% on that condo. I have other examples (including myself).  Pretty good reward!

You may ask, "Why?" Well, Summit County is near build out making land scarce. Vail owns Breckenridge Ski Resort and is investing heavily on the mountain. They usually get their price.

There are basic principals to investing, and don't get me wrong, I believe there may be opportunities in the bear markets, but they are tough to find, and probably risky. I feel strongly that if you are looking for a market that has strong upside you need to find these unique markets.  With Vail at $2500-$3500 a square foot and Aspen at $3500-$5000 a square foot, under $1000 a foot makes my market seems very reasonable. A lot of people agree upon this these days.

Those other markets are also great indicators to what we can expect to see here in upcoming years.   There are some great investment opportunities here in Breckenridge, and compared to other markets the cost of entry is extremely reasonable.

The Breckenridge Realtor 

Chris Gempeler

www.MountainTopRealtor.com