The 3 Elements of a Real Estate Risk Management Plan

By Cynthia Meyer, CFA®, CFP®, ChFC®

A risk management plan in your real estate business includes creating strategies to:

Prevent negative events from happening in the first place

A simple example of risk prevention is removing a pool from your rental property to prevent pool-related accidental injuries or drowning from occurring in the first place.

Reduce the impact of negative events when they occur

Using the pool example, a risk reduction strategy could include installing a safety fence around the pool, maintaining it in safe condition, adding safety covers on drains, and posting signs with pool rules.

Transfer the financial risk of negative events

A risk transfer strategy would include making sure you have the right insurance coverage in your landlord policy before your rent the property with the pool, as well as including a provision for tenant pool use in the lease, and what happens if the tenants do not follow the rules.

Protect what you have built. Risk management is a critical part of a real estate investor's personal financial plan.

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