Most investors, young and the old, novice or professionals, think that real estate is a good choice as an investment. This is not without its inherent reasons. Moreover, real estate is one asset class that you do not need to monitor continuously. Buy it, leave it, rent it out, and relax—that is what most investors do. Some even go to the point of buying under-construction properties and sell them midway, even before completion. Other investment vehicles like equity shares, bitcoins, gold funds, and debt funds need continuous monitoring. One blink, and you can lose it all.
This is where real estate scores over others. However, every coin has two sides. So you need to be aware of both the benefits and the negative points before investing your hard-earned money on such fixed assets.
In this blog post, you’ll learn about the risks of buying a property as an investment.
Unpredictability
Most real estate investors believe that property prices can head in one direction. Additionally, the market should comply. However, it might not be so in reality. While it is true that real estate prices appreciate over time, the market can turn volatile. Moreover, you might have to sell off the asset at a lower price than you intended.
Government policies, supply, demand, and interest rates play a crucial role in deciding real estate trends. Therefore, it is essential that you research and then invest in a particular property. Additionally, you need to monitor the asset over time, though not regularly.
Location Choice
The location is the first consideration when looking at advertisements for properties for sale. You will find numerous such advertisements in local dailies and online. It is not only the case with such spaces but also ready apartments. You should always choose a locality which you’ll love staying in. It is nothing much more important than the location, which is a sure winner all the way.
The demand for rental properties in bustling localities is relatively high today. Apart from the location status, most people look for facilities and amenities nearby. Therefore, you must always invest in these locations when available. If you happen to choose the wrong location, as someone in the area was giving a deal on it, you’ll be in for a rude awakening later on. Relying on someone else in this matter is good if you are a layman about such things.
High Vacancy
Usually, people love the term vacant. However, that is the purview of the tenants looking for space to rent. If you happen to be an investor, you should always avoid high vacancies. If you have a residential house or office space, you need to fill them up quickly. If you count on such avenues to pay your mortgage payments, loans, or taxes, the high vacancy might spell doom for you.
The best thing that you can do to avoid such surprises is to buy an investment property in high demand. Check the market rates and fix the rent. Advertising might also help you lure more candidates. Furthermore, you should start looking for new tenants when your current one gives you notice. Apart from this, your behavior towards your tenants also matters. More people love to stay in a rental property, especially when the owner is nice and friendly.
Bad Tenants
This is another risk that is associated with an investment in real estate. A bad tenant can become a headache for you. The most common problems that such people create are not paying rent on time, skipping electricity bill payments, and causing damage to the property. In either case, you will be the lone sufferer.
It is pretty impossible to forecast what your prospective tenant will be like. However, you can always run a credit check and a criminal check from the local police station to keep your interests safe. You should draw an agreement before allowing the tenant to shift into the premises. It will also do you good if you check the antecedents of the tenant from his employers.
Less Liquidity
This is another risk that you can associate with real estate investments. In the case of stocks and shares, you can sell them when you need some help with cash. Moreover, you get the current ongoing rate for the same. However, when it comes to real estate investments, you might have to sell the same at lower rates if you need urgent money.
One way you can save yourself from this damage is to take a home equity loan or do a cash-out refinance to alleviate the situation and get the amount you require.
These are a few risks associated with property investment. If you are careful, you can make a lot of profits. That is what the more seasoned investors are doing today.
