Real estate is a profitable venture. Many millionaires would attest to this fact. However, the truthful ones will also tell you that they have gotten their fingers burnt at one time or the other. In other words, the real estate business is risky and profitable all at the same time. It is important to note that not property that you invest in will return a profit. There are many pitfalls and booby traps the unprepared investor may not be wary of. It is vital to understand the risks involved and steer clear of them.
Here are the common risks involved in different real estate investments.
This type of investment entails the renovating of a property to your peculiar tastes or preferences and selling it for a profit in future. A flipped property can become a major problem for you if you find out that you paid too much for the property or if you underestimated the cost of repairs or renovation. There is also the failure to meet up with the specified time frame for the completion of the project.
You might even have made the wrong judgment call by choosing a dodgy neighborhood. Sometimes, it is best to just sell at a loss and walk away. Hopefully, it would be an experience that would never repeat itself. However, the biggest problem of all is to be hit with a down turn in fortune of the real estate market. This might leave you stuck with the property forever or coerce you to sell at a loss.
A rental property is a popular way to churn a profit. However, it comes with a slew of problems. Firstly, if the property cannot deliver income on a monthly basis to cover expenses, already it is an epic fail and not an investment you should be proud to be associated with. In addition, you might also need to contend with tenants from hell. The tenant who disturbs the neighbors with loud music, wild parties and smashes everything to bits when he has a temper.
Rental properties also pose a severe risk to your profits when they are uninhabited or vacant for long periods. The property might have cost you a tidy sum to build. Unfortunately, it is lying down idle, unused and not putting back your money in your pocket.
It is essential that you do your homework well and not purchase properties in areas that have low customer patronage. This might be due to a host of reasons including, high crime rates, areas prone to natural disasters or basically just places only see plenty of activity during particular periods of the year.
A property that you purchase for yourself and family to inhabit is an investment, make no mistake about it. When you build your home, work with the knowledge that it is meant to gain value over time in case of a resale.Â So you need to avoid the risk of buying a house in backwater territory where the rest of the human race are uninterested or hardly pay a visit.
If you choose to do this, it puts you in a position where you would lose money on your home in case of a sell. You might also have a problem with obtaining a loan as your home would hardly be an attractive proposition for any serious-minded money lender. However, the biggest problem that you can encounter is buying a property without a proper inspection, only to discover that you share the home with rats and other representatives of the animal kingdom. Toxic inhalation and structural problems in the house are factors that could also pose a risky investment.
Risks Involved in Real Estate Investments