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This episode is a business coaching course that explains what market risk is.

Results-Focused Training, Tools, and Workshops from Expert Business Coaches.

Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Definition Magician: Market Risk - The possibility that downward market trends will reduce an investment's market value.
  • Lesson Nugget: The market risk represents the broader risk that is involved with a property, often times outside the control of the proprietor.
  • Editor's Note: Ben Bernanke, the former head of the Federal Reserve, said the 2008 financial crisis was the worst in global history, surpassing even the Great Depression. - CNNMoney, 2014
  • Lesson Nugget: Investing in fast-growing real estate markets can have greater financial risks and advantages than steady real estate markets.

[MUSIC PLAYING] looking foralternatives to lynda.com? understand market risk better than at university of phoenix

[MUSIC PLAYING]

-All right, Thrivers. We are here today with there is no real estate topic too obscure. Michael Burer in sunny San Diego, where we can be off-- is it true, do you have like, is there a lot of, what is it? Is it walruses, or what is it that-- or seals. There are seals that gather on the water around here, right?

-Oh yeah.

-Seals are on the beach.

-In La Jolla, sure.

-Yeah, we could be out watching seals in La Jolla. No, but we are not. We are here on Thrive15.com, one of the alternatives to lynda.com, talking about a term you're excited about it. I'm excited about it. It's called market risk. And I'm going to read the definition. And then Michael's going to give us a little bit of clarity about what this means. Here we go.

[WHOOSH]

The possibility that downward--

[WHOOSH]

[CHIMES]

--market trends will reduce an investment's market value. What say you?

[CHIMES]

[WHOOSH]

-So market risk refers to the broader risk of your investment-- your real estate investment. That's as opposed to, like, the risk of the tenants. Maybe if you have a building, your tenants could get up and leave.

You could have your building deteriorate physically. Maybe the air-conditioning maybe the physical plant stops working. That's not what market risk is.

Market risk is the broader risk that the desirability of your area or of real estate investing just generally-- the whole economy-- could go south. That's market risk.

[WHOOSH]

-You guys have properties with your firm in San Diego, right?

-Mm-hm.

-Hawaii?

-Yep.

-Anything in Las Vegas?

-Not in Vegas.

-Los Angeles?

-Yeah.

-Phoenix?

-Yep.

[WHOOSH]

-Anywhere else?

-Texas, Colorado.

-OK. Well, let's talk about this for a second. When we had the recession that it hammered us-- 2008, 2009?

-Mm-hm.

-San Diego-- I mean, the market value and the market risk in San Diego was considerable, right?

-Mm-hm.

-I mean, property went way up in value before the recession and then just plummeted, didn't it?

-Sure. I mean in the great recession, the market risk was across the whole country. So every market was impacted. Some were impacted greater than others.

[WHOOSH]

But certainly all markets were impacted at that point.

-Well, let me ask you this, though. San Diego, let's say-- how much lower--

[WHOOSH]

--did the value of properties get for a while? Now I know since that time they've rebounded. But how much lower did it go? Did property lose half of its value during the recession?

-Certainly, there were some properties that did, yeah-- 30%-40%.

-And in other markets, let's say, like, Oklahoma, which isn't exactly a tourist capital-- not really a lot of just rapid growth.

[BLOWING WIND]

It's more steady Eddie. I say "Eddie" because it's a clever way to help you remember "steady." But steady Eddie-- it's pretty steady. That didn't go down as much. It was more of just not up too much or down too much.

Are their market risks that are inherent when you invest in regions that are more fast growing? I mean, if you were to invest in Los Angeles, is that a different market risk than if you invest in Colorado?

-Yeah, so typically markets that are going to have a lot of quick appreciation have more market risk. There's more volatility that they could decline quickly. So for example, Phoenix typically is a market that has greater peaks and greater troughs.

CLAY CLARK: Why?

-Just because of the cycle. The demand from investors and tenants is more-- it depends on factors really across the nation-- on employment and the strength of the economy versus core markets. Downtown San Francisco for example, much more steady, although definitely will have peaks and valleys.

[WHOOSH]

-I heard in Phoenix properties were selling for like a fifth of what they were pre-recession when the recession hit. I mean, they just dropped.

-Certainly. Right.

-So--

[WHOOSH]

--a house could be $1 million. And now people are buying it for $200,000. But now it's back up again. So it's kind of that up and down?

-Mm-hm.

-And if you're going to be investing in real estate, do you need to go ahead and understand that the markets do this and that?

-They definitely do.

-I mean, is that something that's just part of the game?

-That's part of the game. And that's often where you can make a lot of money. But you can also lose a lot.

-Michael, I appreciate you being here. And as the Thrive community knows, I would never waste an opportunity to share with you how much I appreciate you. And so I have formulated something.

Last night, I used this Etch A Sketch. And it's hard to write on that because you're like-- and then you're-- and it's hard to get any type of words out of that thing. But I was able to write in continuous cursive.

Now as luck would have it, I can't show it to you. I can't prove it. I lost the Etch A Sketch. But this is what I wrote last night.

-Let's hear it.

-I deeply appreciate you talking about market risk and what that could mean for the future of hair styling gel around the world.

-Boom.

[EXPLOSION]

-[LAUGHS]

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