Back in the day, we used to do a bit of rock-climbing.
OMG, are we really old enough to talk about “back in the day?”
Oh well, moving on ….
Rock climbers have a major guiding principle of using redundancy. Engineers, and especially pilots, do the same thing. In these cases, redundancy means, “a situation in which something is unnecessary because it is more than is needed.” Basically, it means that 2-or-more things are doing, or are capable of doing, the same job/function. For example, airplanes may have several computer systems or programs in parallel, in case one should fail. Engineers may install extra components, or fail-safe mechanisms, in case of a malfunction. And rock climbers typically use multiple components (eg. carabiners), just in case “something weird happens.”
We’re not talking about anything new here. Good real estate investors have built their portfolios with multiple exit strategies for decades! However, these days, backup plans are not a “nice-to-have,” but a necessity.
As builders and renovators, we LOVE having backup plans for each of our trades. Please don’t misunderstand. We strive to build strong relationships with our suppliers and tradespeople. But unexpected events really do happen. A tradesman died unexpectedly, and his wife closed the business the next day–even though their staff were more than capable of finishing the jobs in progress. Another tradesman was suddenly deported, even though he was fantastic at his job (we acknowledge that there may be more to the story, but we have never learned it). A company we had worked with for years took 6 weeks to do a job that had taken them 2 weeks in every other experience. How many trades have we met when they were “on the wagon,” only to find them falling or leaping off the wagon in future encounters?
There are many other stories about our builds and home transformations. The bottom line for real estate investors is to “love the one you’re with” on that jobsite. But it’s okay to have a few other “ones” you can call on, substitute, or use at different jobsites. By the way, it’s also ok if they know about each other. We’re not playing games—but everyone is replaceable.
Having back up plans applies to so much more than the general contracting phase of a project. But we probably don’t need to explain that to today’s real estate investors. Whether it’s policy, or infrastructure, or zoning, or …, the list of possible wild cards seems endless these days. On a financial and tax/estate planning level, the game is also changing faster than even CRA seems to be able to keep up to. And please don’t get us started about how the banking regulations are in constant flux.
More than ever, it is important to have multiple plans for our real estate projects and our financial freedom, and even then, we might still need to adapt. These days everyone likes to talk about the Pivot. But the pivot is so much easier if some backup plans were in place from the beginning.
The ROI, the glamourous “after pictures,” the cashflow are all so much fun to talk about. Today we’re simply sharing one aspect of the totally un-sexy risk management side of real estate investing. Because a bit of caution, planning and strategy keeps us in business and moving towards our financial goals.
