When investing in Real Estate, you need to be aware of risks associated with the business. Many folks only hear about the success stories in real estate and never pay attention to the other side of the coin. It is important when investing to be aware of the risks associated so you can adequately prepare for and manage those Risks of Real Estate Investing.
Unfortunately, investing in real estate is not a risk free endeavor, in fact there are many risks associated with real estate, however there is much to be gained from real estate investing as well. The key to any risk is being able to identify it and to manage that risk, below are some of the most common risks associated with real estate investing.
- Negative cash flow -If your investment fails to generate positive cash flow from the get go and you’re hoping for appreciation without a true plan to increase cash flow, you have failed to manage risk.
- Tenants – Finding quality tenants can be quite difficult, many novice investors rent to the first folks that fill out an application – don’t make this mistake as your property will soon be run down.
- No appreciation – some folks will buy property with the speculation that property will increase, because real estate always goes up in value, right? While investing based on speculation can work, it’s not recommended for many of your deals as the risk is too great.
- Repairs – Always estimate repair costs when contemplating buying a property. Make sure to estimate higher numbers than expected as you always want to prepare for worst case scenario.
- Employment loss in area – Make sure you know your area well, don’t invest in towns with one or two major employers as the risk will be much too great.
- Underestimate management required – Don’t try to manage properties on your own, find a reputable management company and have them take care of the property – you’ll be glad you did.
- No exit strategy – when buying a property, make sure to have multiple exit strategies at your disposal. Only having one is not sufficient
Investing in real estate can be a very lucrative endeavor, however you need to make sure you are aware of the risks. If you manage risk in this business, you have the opportunity to make quite a bit of money. Do your homework and be ready for challenges, it’s not easy but it’s well worth the effort. Happy Investing.