I am generally conservative when it comes to risk. I enjoy the satisfaction of knowing the odds are in my favor. Some would say “small risk, small reward” but I like to look at it as “small risk, sure reward”. What’s “small” about the risks I take (or would take) is not necessarily the amount of money involved. Rather, it’s taking into account the different possible outcomes and measuring the likelihood of success. Also, I look at the worst case scenario (no matter how low its odds) and consider if the attempt would still be worth it if this were the outcome.

When I was 23, I bought an apartment. This was before the Great Recession and in the middle of the real estate bubble. Mortgages were easy to get, even for a young kid with a $42k salary. I had a lot of options. I wanted to hold onto something and sell it for a nice profit two or three years later. However, the main factor behind my decision was the ongoing cost of owning this place and what I got for the money – I decided on value.  

I settled on borrowing the least amount possible for an apartment in an area generally considered “undervalued”. No neighborhood this close to Manhattan and surround by public transportation sold for this cheap. Between mortgage and maintenance/utilities, this apartment would cost the same as rent!  Public and private money was confirmed to be invested into this area and that added to its great investment potential. If the worst happened and I couldn’t make my payments or if the apartment’s price didn’t go up with time – I would be OK. If I had to rent it out and move back in with my parents, it would pay for itself.

The worst case scenario did happen with the Great Recession. Real estate values dropped across the USA, and NYC was hit hard. While prices in some areas of NYC dropped as much as 30%, my apartment maintained its price because it was already undervalued before the real estate bubble burst. It was a victory given the circumstances because other places I considered would have been “under water” – where mortgage amounts are higher than a property’s worth. I could have borrowed three times as much money and invested in a higher priced property but that would have been my ruin.

Today, with the modest recovery in the economy and housing sector and with banks refusing to lend money, less people are able to buy into high-priced properties. Many people that can buy into high-priced properties have since learned to be more conservative. Lower-priced properties like mine are more desirable than before and I am actually receiving higher offers than I thought possible in this economy. People have learned to appreciate value in NYC real estate. Rents have also risen in this neighborhood because more people are renting than before. The tough economy caused more people to move to NYC for work. A lot of previous home owners are now renters, too. If I chose to rent my apartment I could make a little money from it.

This was my biggest lesson learned about value and risk. I made the right decision by considering the potential reward along with the worst case scenario. I decided the worst case scenario was acceptable, even though the possible reward was far less than other riskier options, the risker options would have ruined me. I stood to make less money but also limited my risk while being satisfied with the ongoing costs of ownership.