Comments (0)

While a good many millionaires will agree that their fortunes were made in real estate, the honest ones will also tell you that they’ve probably lost a few fortunes in real estate along the way. This is a risky business and every property purchased doesn’t always pan out to become a successful investment. There are many risks involved in real estate investing and you would be going to battle unprepared if you didn’t take a moment to carefully study these risks and work to avoid them when planning your property investment strategy.

Unfortunately, there are very few one size fits all risks for real estate investing, as each type of investing is inherently different. This means that each type of real estate investment will involve a new set of risks. Below you will find a brief overview of different styles of investing and the common risks that are involved in each.

Rental Properties

This type of investing offers some risks that are unique and some that are also risks when investing in properties that are lease-to-own or rent-to-own as well. First and foremost is the risk of failing to make a profit. If the property in question cannot achieve an adequate monthly income to cover the expenses of operating the property then it is not a solid investment.

Other risks include the risk of getting bad tenants. This is particularly hard on first time investors. Bad tenants are costly and in some cases destructive (which leads to even greater expense). Vacancies are another risk for rental properties. These properties are only costing money as they sit empty rather than earning money as they were intended. Short turnovers are in your best interest as are long-term tenants.

“Flipped” Properties

This is one of the most enjoyable types of property investments for many ‘hands on’ investors. This allows the investor to roll up his or her sleeves and take an active role in creating the masterpiece that will eventually bring in serious revenue (at least that is the hope). This is also one of the riskier investments, particularly when trying to turn a profit in what is known as a buyer’s market.

The risks are simple but often overlooked and they can have a significant impact on the overall success or failure of the project. First of all, the biggest risk is in paying too much for the property. Other risks include underestimating the costs of repairs, over estimating the ability of the investor to do the work him or herself, taking too much time, experiencing a down turn in the housing market, making the wrong judgment call for the neighborhood, becoming overly ambitious, and getting greedy. Sometimes it is much better to walk away with a lesser profit than to end up loosing money by holding out.

Personal Residence

Keep in mind that your personal home is essentially an investment. The intention is that your home will gain in value over time and that equity in your home will build as you age. There are risks involved in this transaction as well. Buying a home that is in a ‘borderline’ area or one that is not showing obvious signs of growth is one of the biggest risks. This puts your home in the position to lose rather than gain value. This can make your home a burden rather than the investment it was intended to be. Other risks involve is becoming involved in a loan situation that is not at all beneficial (such as an adjustable rate mortgage or an unreasonable balloon payment).

Perhaps the biggest risk of all when purchasing a personal residence as an investment is failing to get a proper inspection that could rule out potentially costly and even dangerous problems within the home your purchase for you and your family. Toxic mold is one problem that comes easily to mind that most proper home inspections would almost immediately rule out. Others include structural problems that are costly to repair and dangerous to leave in disrepair. Each of these risks should be considered before an offer is made on any property.

For those seeking to turn impressive profits in short order, real estate is one way in which this can be accomplished. It is in your best interest however to be aware of the risks that are involved and take careful steps to minimize those risks. Taking these steps now may cost a little more on the front end but in many cases the pay off for doing so well outweigh the expenses.

Comments (0)

There are many questions that should be asked before embarking upon a career of real estate investment. The first and foremost question however should be whether or not you are truly committed to making real estate work for you. This is not a business for the faint of heart. In order to truly turn a profit you must be at times ruthless when dealing with buyers and sellers but ethical to a fault when it comes to the work that must often be done in order to get a property in sellable condition.

The reason a serious commitment is needed in order to make real estate work for you is simple. There will be ups and downs along the way. The stock market experiences rises and falls on a regular basis. Just as you cannot dump all of your stock over one bad day the same holds true even more so in the realm of real estate investing. Property values in general rise gradually over time. This means that even if the values in a community falter chances are that they will eventually recover.

Those who bank on the slow and steady growth in the value are referred to as buy and hold investors. These investors are truly committed to their investment. Some of them elect to hold the property as a vacation property while others opt to earn an income on the property by renting it out to other families or vacationers, whatever their choice may be.

This is a great way for many people to enjoy the luxury of a vacation property without absorbing all of the expenses involved in owning a vacation property as the rentals will help compensate some of the costs when the owners (investors) are not in residence. This is a fairly common practice in high demand tourist areas in which people often enjoy vacationing. These types of investors are what some people refer to as serious real estate investors though all real estate investors need to take their purchases seriously.

Those who own rental properties must also be committed to making their investments work for them. Rental properties are not a ‘hands off’ type of investment, as they will need to be maintained in order to remain in demand by tenants. You must also make constant efforts to keep these properties managed and filled along with remaining certain that you are collecting your rent each month and that the properties aren’t falling into a state of disrepair or abuse by tenants.

Many investors retain the services of property management agencies in order to handle the minutia of month-to-month details and collections. This is a great idea whether you have one lone rental property or a vast portfolio of rental properties. Even better however, is the fact that if you keep your rental properties in reasonable repair throughout the years they can become liquid assets in time. In other words, they may actually pay for themselves a few times over if you invest for the long-term rather than focusing on the moment.

No matter what type of real estate investment you intend to have it is important that you are prepared to make the commitment to profit or profitability that is necessary in order for your venture to be deemed a success.