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Risks involved in Real Estate Investment

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Risks involved in Real Estate

Know Risks Involved in Real Estate Investment

The risks involved in real estate investment are less as compared to other types of investments. The returns from real estate investment can be created over a period of time. But as an investment always comes with a risk element, the risks in real estate investment can be listed as market price risk, regional price risk, property expenses, finding tenants, and financing risks.

Let us enumerate the different types of risks and its controlling action plan found in real estate investments.

Related : How to become a Successful Real Estate Investor?

Market price risks

The risks pertaining to changes in the market prices of the real estate properties do exist. However, these fluctuations have been regulated by balancing of demand and supply forces in the market. Investors are having a wide range of options in the real estate market. The properties are available in numerous locations, various facilities and at competitive prices. Even as an investor, you can hold your property as you wish till you get the right price for your property.

Regional price risks

The risks due to property prices also exist at regional level. The main element in choosing the right and profitable real estate property is the location. You need to evaluate certain factors in order to measure the quality of the property location. At micro-level, you must think from the point of view of the final customer. These factors include accessibility of schools, colleges, hospitals, departmental stores, malls, etc so that the customer or the tenant can fulfill his essential needs. You can study the location from the perception of an investor by considering the factors like nearby construction projects, public transport, accessibility to highways, and planning of complexes.

If the property is located in an area inhibited by thieves or if the area is risky for women, then there are chances of considerable decrease in your real estate prices. The study of the location of the property is a part of your real estate investment process.

Related : Basics of Real Estate Investing

Property expenses

For purchase of property, you must undergo through a complex process and is subject to several taxes, and stamp duty payment. Even if you are renting your property, you are responsible for paying water charges, maintenance and house tax on annual basis.

Tenants – Searching the perfect one

Searching the right tenants is also risky these days. Some tenants do not pay rent on time; some do not leave the property when demanded, while others do not maintain the property properly. You cannot predict how your tenants will be. To overcome this problem, you can seek referrals or ask any if your relatives or friends are interested to rent your property.

Financing risk

You can overcome this risk by properly managing your finances. Do not use more borrowed capital for the purchase of property. Do not keep your property vacant for a long time. Search for tenants instead. You must not pay more for a property that is not easily accessible for anyone. Searching a good property will overcome these financing risks.

Thus, certain risks are involved in real estate investment. But it is up to you how you manage with a proper plan and sufficient research.

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3 COMMENTS

  1. Investing in real estate seems highly profitable by many. But the investment can become profitable only when certain planning is done. For example, first of all you need to select a locality that is well-connected and has got good growth prospects. On the other hand, there is no denying the fact that sometimes even careful planning might not give you expected results.

  2. Very well said Ankita! I completely agree with you that investing in real estate is quite risky. I would like to mention that investing in land is more risky than investing in houses and renting them. I have personally experienced that quite a few people occupy vacant lands and start living in tents. It is very difficult to drive them off . If neglected, there are chances of these people claiming that the land is their’s and a lot of legal procedures need to be completed to get back our property. Thus, I feel it is always better to buy properties in gated communities where the risk of tresspassers and fraudulent tenants is very less

  3. To invest in real estate involves quite a lot of research and experience together with a large amount of money. The author has very well evaluated the various risks involved in real estate investment and ways to overcome it.

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