Measuring Risk and Reward In Today’s Market With Josh DeShong

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  The real estate market is shifting, which could mean different things for different asset classes. How do you measure risk and reward for your investments? Here to help guide you is Josh DeShong, the Founder/Investor/Chief Problem Solver at Josh DeShong Real Estate. Josh joins Tim Herriage to share why it’s essential to understand the risk and rewards of every investment as we approach a change in the market. Some will do better, and some won’t. Don’t miss this episode so you can ready yourself with valuable expert tips and insight. — Watch the episode here   Listen to the podcast here   Measuring Risk and Reward In Today’s Market With Josh DeShong In this episode, I have an industry legend, Josh DeShong. Josh, thanks for being here. Thanks for having me, Tim. Josh, if you want, take a couple of minutes and just say a little bit about yourself. I am Josh DeShong. I started in the real estate space at the ripe age of seventeen. I got licensed immediately after turning eighteen. I joined Keller Williams Realty and became one of the top ten agents in the country underneath them. I was a Wall Street Journal ranked real estate agent back in 2012. I decided to invest in real estate, but mind you, I had gone through the worst housing recession in history, and I did not know anything. I started investing in 2012. I did well in 2013. In ‘12, I bought two houses. In ‘13, I bought over 30, and then in ‘14, I bought over 100. The story goes from there. I started buying, fixing and flipping, holding for rent, and then I started wholesaling. I came at the wholesale business in the opposite direction. I think most people start with wholesaling and then they get into the fix and flip. I went the opposite. I went fix and flip into wholesaling. We built a platform for wholesalers and investors to give them a safe to transact. The high level is me. You are a bored person that never does anything. I bite off more than I can chew most days. I like to start each week with what I call the Bottom Line Upfront. When I was in the Marine Corps, we would brief the general and we were always taught, “Never bury the lead because the general may have to get up and it may be combat or there may be mortars coming in. You have got to make sure that the general knows the most important thing.” I start each week with two minutes to talk about things they should be looking at in the market and things you think they should be doing if there is anything you think they should not be doing. It is just two minutes, you and the audience. This is a perfect piece of the segment. I have been thinking about what I would share, what I think is important, everybody should know and be paying attention to. I was reminded of a conversation I had. I was talking to an investor and he said, “I only care that I make $20,000 per deal.” I thought that was an interesting statement. This particular investor buys 20, 30, or 40 houses a year. He is a very experienced investor, but I was reminded that in times of expansion, opulence, and everybody is doing well, we tend to lose sight of what matters and forget the basics. With that statement, what matters? I challenged that person. I said, “Would you be willing to make $20,000 on a $100,000 deal?” The answer was yes. “Would you be willing to make $20,000 on a $3 million deal?” The answer was no. Clearly, it is not, “I need to make a $20,000 minimum.” We have increased risk. You should size the returns you expected against the risk you are willing to take and understand that for every property you buy, you are taking risks. Whether you are buying in a high-end area or a low-end area, it does not matter. Everything has risk associated with it, and make sure your return expectations are properly aligned. Risk versus reward. I will tell you a funny story. I was in Vail and my wife texted my twelve-year-old. She says, “What are you eating for breakfast?” He says, “I am making cinnamon rolls.” I am like, “What?” She says, “Who is helping you with that?” He writes back, “I read the constructions.” He still calls instructions constructions because his entire life, he wanted to know how to build something. I would say, “Let’s get the instructions.” In his mind, he was saying construction. I grabbed the phone. I call and I was like, “Stop.” He was like, “Dad, I am hungry.” I was like, “Your grandmother is there. Get her to do it.” To him, he just wanted the reward. He was not worried about the risk. Here in the DFW market and in every market, we have not had to worry about risk. That is something that has been thrown to the wayside. We are talking to many investors. I think it is a national thing. What type of risks are we looking at? If you look at the economic makeup of communities, different classes are going to be affected differently in the future. Property values could come up or down. Rents are going to go up or down. That is going to happen differently based on the price point that a home is in. I think the biggest risk that investors face is not properly understanding an area and what they should be making relative to the inherent risk that area possesses. For instance, a rent-heavy market could absolutely affect home prices. You have a high degree of quite a few tenants. What is controlling housing prices in that market might be more tied to the property values than somewhere like Plano, where a lot of people want to move in