3 Major Risks involved in Real Estate Investment, No 2 Will Shock You
There is no doubt that investing in the Real estate can be very lucrative, but it’s also important to understand the risks associated with the investment if one is not careful enough.
Real Estate investors sometimes prefer to ignore the risks in property investment, including the unpredictable nature of the real estate market which is not advisable to neglect.
1. Choosing a Bad Location
Choosing the right location should always be your first consideration when buying any investment property.
Your property’s location determines your ability to make a profit from your property investment and enhances its potential for appreciation.
In general, the best location is the one that will generate the highest value within a short time which is why it is necessary that you only acquire a property in a good location.
2. Tenants Problem
To avoid vacancy risk, you want to keep your investment properties filled with tenants. But that can create another risk: problem tenants. A bad tenant can end up being more of a financial drain (and a headache) than having no tenant at all. Common problems with tenants include those who:
- Don’t pay on time, or don’t pay at all (which could lead to a lengthy/costly eviction process)
- Trash the property
- Don’t report maintenance issues until it’s too late
- Host extra roommates (human or animals)
- Ignore their tenant responsibilities
While it’s impossible to eliminate the risk of having a problem tenant, you can protect yourself by implementing a thorough tenant screening process. Be sure to run a credit check and criminal background check on every applicant. Also, contact each applicant’s previous landlords to look for red flags like late payments, property damage, and evictions.
It’s also recommended that you investigate a potential tenant’s work history. Make sure they have a steady salary that can reasonably cover rent and living expenses. It’s also a good idea to pay attention to scattered work history. An applicant who bounces from job to job may have trouble paying the rent and may be more likely to relocate in the middle of a lease.
3. Lack of Liquidity
If you own stocks, it’s easy to sell them if you need money or just want to cash out. That’s not usually the case with real estate investments. Because of the lack of instant liquidity, selling a property off might take weeks or months to get the best deal as buyers will only look to take advantage of a distressed seller. You could end up selling below market or at a loss if you need to unload your property quickly in limited time.
While there’s not much that you can do to lower this risk, there are ways to tap into your property’s equity if you need cash. For example, you can take out a loan using your property as a collateral.
Kindly note that all this risk can be properly managed when you engage the right professionals. Our team will be willing to offer you the help you require and guide you through the process in the most convenient way, for more information please call us on