In the world of real estate investing, understanding the importance of risk and return is crucial for success. Dave Allred, an experienced investor and business owner, highlights this concept on Justin Donald’s podcast The Lifestyle Investor. With years of experience in sales leadership and real estate, Allred has built an impressive portfolio and achieved financial freedom at the young age of 36.

Allred’s journey began in a small town in Utah, where he grew up in a very low-income, blue-collar home. Despite the lack of financial education and resources, he made a commitment as a teenager to uplevel his life and do whatever it took to succeed. This determination led him to a door-to-door sales job selling security systems in Chicago, where he faced enormous challenges and failures.

However, Allred’s persistence and willingness to learn from his experiences eventually paid off. He sold 120 accounts in his first summer, earning $31,000 which was more than anyone in his family had ever earned.

He then went on to manage 121 teams across 41 states as a regional Vice President for the company. During this time, he also began investing in real estate as a side hustle, starting with a 4-plex and gradually scaling his portfolio to include ownership in over 1,000 rental units.

Understanding Risk and Return for Real Estate Investments

In real estate investments, the concept of risk-return refers to the relationship between the potential risks of loss involved in an investment and the expected returns from that investment. This relationship is fundamental in making investment decisions, as it helps investors weigh the potential rewards against the inherent risks.

Let’s take a look at some advice Allred has for those stepping into the world of real estate investing.

1. Have a Growth Mindset and Be Curious

One of the key lessons Allred learned early on was the importance of having a growth mindset and always being curious. He emphasizes that mindset is everything and that limiting beliefs can hold people back from reaching their full potential.

Different investors have different financial goals, whether it’s steady rental income, long-term capital growth, capital preservation, tax benefits, or a combination. Understanding risk and return helps these investors tailor their investment strategies to meet these specific objectives, ensuring a more targeted and effective approach. By maintaining a commitment to being a lifelong student and operating with humble confidence, Allred has been able to continuously expand his knowledge and take on bigger challenges.

2. Being Intentional and Clearly Defining Outcomes Goes a Long Way

When it comes to real estate investing, Allred stresses the importance of having intentionality and clarity. He developed a system called “Lifestyle Design” to help him define his goals and reverse engineer the process of achieving true financial freedom.

By calculating his annual cost of living, current passive income, and the gap between the two, he set a specific target of acquiring 40 rental properties by age 40. Once he achieved this goal at age 36, he then upped the goal to ownership in 1,000 rental properties, which he was able to achieve prior to turning 41.

This approach highlights the importance of understanding risk and return in real estate investments. Having a clear grasp of these concepts can foster greater confidence among investors, as it ensures their decisions are based on sound financial principles and clearly defined outcomes.

3. Make Purposeful Investments

In addition to setting financial goals, Allred emphasizes the importance of tying purpose to money. He believes that the more emotion and passion you put behind your financial aspirations, the easier it becomes to attract money and be a good steward of that capital. By focusing on how his investments can create a quality life for his family and give back to others, Allred has been able to stay motivated and driven.

This purposeful approach is closely tied to understanding risk and return. By clearly defining his goals and the emotional drivers behind them, Allred can make more informed investment decisions that align with his values. This helps manage risks more effectively, ensuring that each investment not only offers a good return but also supports his broader life objectives.

Balancing Risk and Return: The Key to Purpose-Driven Financial Success

Dave Allred’s journey from a small-town upbringing to achieving financial freedom through real estate investing is a testament to the power of persistence, curiosity, and intentionality. By maintaining a growth mindset, setting specific goals, and tying purpose to money, Allred has been able to build a successful business and create true freedom for himself and others.

Central to his success is his understanding of risk and return. By carefully balancing the potential risks of his investments with the expected returns, Allred ensures that each decision supports his financial goals and lifestyle freedom goals. This strategic approach not only maximizes his freedom but also aligns with his purpose, driving him to achieve more while managing risks effectively.