Risk is relative
The biggest mistake an investor makes
The biggest mistake an investor makes is when they view an investment risk as fixed or permanent.
For example, if you ask most people:
What's the safest way to invest your money?
Most people may say:
A savings account at the bank or a GIC - Guaranteed Investment Certificate (in Canada) or CD - Certificate of Deposit (in US).
Some people may also say:
Top rated bonds such as US Treasuries, Government of Canada bonds or corporate bonds.
Bonds with AAA rating.
On an absolute basis - would one lose their principal in one of those 2 investments above?
Very unlikely.
The reality of “safety” changes quickly when we compare those investments to real inflation, not the inflation # published by the government
Those investments no longer looked "safe".
Why?
The way government calculates "inflation" has changed over time.
Ask anyone who goes to the grocery stores, they will tell you they KNOW inflation is higher than the 3 or 5% offical numbers.
Anyone who owns financial assets know how much things have gone up since 2020.
That’s because all the money printed has to go somewhere:
Real estate, stocks, crypto, gold, etc.
If one were to invest in deposits at the bank or bonds, their investment didn't keep up with the real inflation.
They may be a little behind few years ago, they got REALLY behind over the past 5 years.
What's considered the "safest investment" may not be "safe" at all!
Multi-family is a safe investment
This is another popular belief that hides an underlying risk.
Multi-family has been very popular with investors in the past few years.
On the surface, having more units in 1 building and more tenants that pay rent to reduce the potential downside of vacancy all sounds great.
That's usually the "pitch" given by a multi-family syndicator or a Joint Venture partner offering a multi-family opportunity to investors.
The "safety" of a multi-family investment quickly changes when one has to sell the asset quickly.
Between due diligence, and securing commercial financing, it can take 3-6 months to close on a multi-family building.
Let's say the rent around the multi-family building is declining, because of the way multi-family is valued, a small drop of $100 in rent could result in 200k drop in asset value.
To sell an asset in an rent decline environment, buyers will take their sweet time to negotiate because they are in the driver's seat.
They may even ask for a much bigger discount on these assets, simply because they anticipate further rent decline.
If a buyer walked away after few months of due diligence, and the rent went lower on few units during that time, that means the 2nd buyer may come in at an even lower offer than before.
Comparing this with Single Family building, where it can easily get sold in as quick as few days.
Risk is relative: Inflation risk
This is how an investor gets in trouble.
When one views risk as a permanent characteristic of an investment, without regard of the changing market conditions or macro economic environment, they may accidentally take on more risk than they had previously anticipated.
For example, the cash investment with a bank or a bond was once a safe investment when the inflation was low.
Things changed quickly when the market changed.
We saw a successful bank Silicon Valley Bank went under because they had too much of their capital invested in low yield bonds when the interest rate and inflation was low.
After the inflation kicked in and the interest rate rose, those bonds were losing huge amount of money for the bank, the bank then went under.
The inflation risk trumped the "safe" investments in bonds.
Risk is relative: Liquidity risk
In the past few years, we saw record number of multi-family syndication deals popped up as investment opportunities in US and Canada.
Both the US & Canada are currently in a housing crisis.
Even though the cause of the housing crisis is different for Canada and the US, the result is a continued increase in rent as there are limited supply of housing on the market.
The party continues until the light goes out.
In some cases, the multi-family syndications were invested close to the peak of rent increase.
As more supply came online with more buildings completed construction, the rent started to decline.
Unfortunately for the ones who waited to sell, they found out the hard way:
It takes a while to sell a multi-family building.
The illiquid risk trumped the "safety" of having multiple tenants in 1 building paying their rent.
This is a common occurrence
I hear them regularly:
This investment is super safe because dot dot dot...
This has always done well in the past, because dot dot dot...
This has never lost money in the past, because dot dot dot...
Side note, the word “ALWAYS” and “NEVER” are my favorite.
Whenever I hear that, I know someone is about to lose money.
Shall I say: I ALWAYS know?
When it comes to risk, the most important thing to remember is:
Risk is relative
Because, there's always 2 sides to any risk:
1. The inherent risk characteristic of the asset class itself - what makes an asset class "safer" than others
And the more important piece:
2. The market risk that's constantly changing
That's what makes risk “relative".
Because the market is constantly changing!
This is why, as a real estate developer / investor, I study macro economics and financial markets closely.
The impact and consequence of a market risk is often much greater than the risk profile of an asset class itself.
Good news is, once you know, you know.
You will never look at risks the same way again.
That, my friend, makes you better than 99% of the investors out there.
If you like my work, I invite you to share it with others.
Eric Chang
Edmonton, Alberta, Canada
July 22, 2025
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