The 101: The Risks of Real Estate Investing
With any type of investing there is always a risk, however it has been stated over and over, “with great risk comes great reward.” and real estate investing is no exception to that. The rollercoaster ride is a thrilling one filled with exhilarating highs and terrifying lows, and the best way to keep yourself safe is to learn. Not only learn about real estate investing itself, but the risk that can come along with it.
General Market Changes
The landscape of the market can have a large impact on your investment journey. Economic ups and down, interest rates, inflation, and so many other marketing trends can lay waste to years of hard work in a property. It is important to learn as much as possible about diversifying your portfolio of investment properties and also about the economic history and prospective future of the market in which your property resides.
Asset
The property or unit you choose to invest in can play a large role in your real estate investing future. If the unit is located in a bad area or town, or even just an area that doesn’t seem to get a lot of attention. This can create havoc on your month to month income and make keeping tenants an issue.
Tenants
Tenants can be a blessing and a curse. When you have a perfect tenant, the relationship can last years and years and have very little bumps in the roads. However, this is not always the case and when you have a bad tenant the damage can go much further than the time they reside in your property. On top of possibility causing issues with rent and payments, there is always the probability of large amounts of damage coming to your property, or worse, structural damage.
Liquidity
Liquidity represents the amount of money you’re able to access in a particular investment. Majority of real estate investment ventures have very little to no liquidity, or are illiquid. This means that it will take effort to convert your investment property into cash, which means most people find themselves in it for the bigger picture, or long haul.
Cash Flow
Cash flow, or rather negative cash flow, can have a very large impact on your where you find yourself in the real estate investing game. If you have not properly performed a market analysis, or do not understand your costs vs potential income and for whatever reason you miscalculate, this is a recipe for disaster, or foreclosure.
Structural
This could easily be one of the worse risks in the world of real estate investing. After years and years of hard work you finally get your first unit that you can rent. For the first year things go great, then all of sudden a complaint comes in and you have the unit inspected only to find out there is structural damage that was missed or if not missed it is just now rearing its ugly little head.
To learn more about real estate investing and your future, contact Buckeye Northwest Realty today!
