A Dummy’s Guide to Risk: Like Pornography, You Know Risk When You See It
Risk is one of those elements of the real estate world that, more often than not, is viewed from the rearview mirror. In many ways, it is similar to hearing a big THUMP while driving down the road. The first thing you do is look in the mirror to see what you’ve just hit (hopefully it’s nothing more than the neighbour’s dog that’s been keeping you awake for the past two months). Risk is defined by three simple questions: What is it? Who owns it? What are you doing about it? The answer to the last question is, in turn, a byproduct of the answer to the first two questions.
While some risk variables are more obvious than others, it is quite rare for parties to disagree on what adds risk to a particular situation (for either an individual asset or a portfolio). In many ways, it is not unlike Supreme Court Justice Potter Stewart’s comments regarding pornography, noting that it was difficult to describe, “But I know it when I see it.” One part