Risk management

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Risk	Mitigation Strategy
Fraudulent sale	Verify ownership, purchase title insurance
Adverse possession	Obtain a boundary survey from a licensed surveyor
Environmental contamination	Obtain environmental survey, test for contaminants (lead paint, asbestos, soil contaminants, etc.)
Building component or system failure	Complete full inspection prior to purchase, perform regular maintenance
Overpayment at purchase	Obtain third-party appraisals and perform discounted cash flow analysis as part of the investment pro forma, do not rely on capital appreciation as the primary source of gain for the investment
Cash shortfall	Maintain sufficient liquid or cash reserves to cover costs and debt service for a period of time,
Economic downturn	Purchase properties with distinctive features in desirable locations to stand out from competition, control cost structure, have tenants sign long term leases
Tenant destruction of property	Screen potential tenants carefully, hire experienced property managers
Underestimation of risk	Carefully analyze financial performance using conservative assumptions, ensure that the property can generate enough cash flow to support itself
Market Decline	Purchase properties based on a conservative approach that the market might decline and rental income may also decrease
Fire, flood, personal injury	Insurance policy on the property
Tax Planning	Plan purchases and sales around an exit strategy to save taxes.

Real Estate Investment