All good things come with some degree of risk. The same holds true with real estate investing. Despite the promise of high rewards, you should come to terms with the reality that the risks involved are more often than not just as high as the potential rewards. Of course, there are ways you can gauge and determine the profitability of your investment like calculating your rental property cap rate. But you still need to take every possible precaution in order to ensure that you minimize your exposure to risk whenever possible—or at the very least be prepared, financially and mentally to accept the consequences of those risks if the time comes.
So here are some common risks when it comes to real estate investing
Risk 1: Potentially losing your investment
The most obvious risk when it comes to real estate investing is the immediate risk of losing your investment. This risk can be a huge blow depending on how large your investment was to begin with but isn’t the worst thing that can happen during the course of a real estate investment gone wrong. While I’m certainly not trying to talk you out of investing in real estate altogether, it is a good idea to have a realistic view of the risks and the potential rewards.
Risk 2: Injury and insurance problems
If you are flipping houses as your real estate investment you have the potential to lose a little more as you can become injured during the course of your work. The sad truth is that many who are attempting to break into the business of flipping houses have neither adequate insurance coverage (this is true of themselves and the property in general and others that may be working on the property), the money, nor the time that a serious injury might require.
Risk 3: The market can fickle
Another risk common to real estate investing is the fact that a multitude of things can happen. Market trends tumble, companies go out of business leaving towns and the local real estate market in shambles, accidents happen during the course of the work, natural disasters occur, and buyers change their minds and pull out at the last minute. Each of these things can have devastating consequences and are almost always events that are completely beyond your control as a real estate investor.
Risk 4: Problems from improper inspection
If that wasn’t enough, many investors fail to have a proper inspection and find out when it is really too late that there are serious structural problems and other sorts of things wrong with the property. These things cost money to repair and cut into profits, occasionally resulting in a loss. The thing is that once you find out something is wrong with the property you are honor-bound to either reveal the problem to potential buyers or fix the problems before selling the house. In the case of a flip, many major problems will undo the work that has already be done. If this doesn’t remind you of the importance of a thorough inspection I have no idea exactly what will. Inspections are important for many reasons and can save a lot of time and money if you have one done ahead of time.
All that being said, do not allow the risks of real estate investing prevent you from taking the plunge. They are spelled out here to remind you that prudence and caution are wise when investing in real estate, not to talk you out of this potentially lucrative field of investing. if you are interested in real estate investing there is no reason on earth you shouldn’t take the time and make the effort to learn more about its potential.