Is Real Estate Investing Safe?
Is owning real estate a risky investment? In the recent times , real estate has been ranked the top investment pick for the majority even as we consider the fact that its a development agenda for the government. It maybe the top investment pick, but is real estate investing really safe? Real estate investment has also risks, and property owners can loose money sometimes when they make the wrong investment. The following are risks taken when making an investment and which should be your guide when making a profound decision.
- The Real Estate Market Can Be Unpredictable
While real estate values do tend to rise over time, the real estate market is unpredictable- and your investment could depreciate. Supply and demand ,the economy, demographics, interest rates, government policies and unforeseen events all play an important role in real estate trends, including prices and rental rates.You can lower the risk of getting caught on the wrong side of tend through a careful , research , due diligence and monitoring of your real estate holdings.
2.Choosing a Bad Location
Location should always be your first consideration when buying an investment property. After all, you cant move a house to a desirable neighborhood-nor can you move a retail building out of an abandoned strip mall. Location ultimately the factors that determine your ability to make profit- the demand for rental properties, types of properties that are in the highest demand and the potential for appreciation. In general ,the best location is the one that will generate highest Return On Investment[ROI]. However you must do research to find the best locations
3.Negative Cash Flows
Cash flows on a real estate investment refer to the money that’s left over after paying all expenses, taxes, insurance, and mortgage payments. Negative cash flows happen when the money coming in is less than the money going out—meaning that you’re losing money.
Some common reasons for negative cash flows include:High vacancy rates
- Too costly maintenance
- High financing costs on loans
- Not charging enough rent
- Not using the best rental strategy
The best way to reduce the risk of negative cash flow is to do your homework before buying. Take the time to accurately (and realistically) calculate your anticipated income and expenses—and do your due diligence to make sure that the property is in a good location.
4.High Vacancy Rates
Whether you own a single-family house or an office building, you need to fill those units with tenants to generate rental income. Unfortunately, there’s always the risk of a high vacancy rate in real estate investing. High vacancies are especially risky if you count on rental income to pay for the property’s mortgage, insurance, property taxes, maintenance, and the like.
The primary way to avoid the risk of high vacancy rates is to buy an investment property with high demand, in (you guessed it) a good location. You can also lower your vacancy risk if you:Price your rental rates within the market range for the area
Advertise, market, and promote your property, being mindful of where your target tenant might look for property information (e.g., traditional methods? online?)
5.Hidden Structural Problems
One sure way to lose money on an investment is to underestimate the costs of repairs and maintenance. For a typical single-family home, for example, you could be looking at as much as $12,000 to repair a foundation or $16,000 to fix the siding. Structural repairs, or remediation for mold or asbestos, could easily cost tens of thousands of dollars for commercial buildings.
Thankfully, you can lower this risk if you thoroughly inspect the property before you buy it. Don’t skimp on hiring a qualified and reputable property inspector, contractor, mold inspector, and pest control specialist to “look under the hood” and uncover any hidden problems. If a problem is discovered, find out how much it will cost to fix and either work that cost into your deal or walk away if it would prevent you from making a reasonable profit.
