In the world of investing, it is common knowledge that there is no such thing as a sure thing. No matter how much research you put into your investments, you can still find yourself at a loss due to unforeseen circumstances that were out of your control in the field of real estate investing.
That being said, reducing the amount of risk involved with a certain investment is possible. By reducing risk, you might not be able to guarantee a high return, but you can very well make sure that you aren’t at risk of losing all of your investment.
One popular type of investment that can be particularly difficult to control is that of real estate. Depending on the sort of investment you are participating in, whether a flip that you are overseeing yourself or an investment with a real estate developer, there are several risks that you are going to want to be aware of.
Thankfully, there are certain steps that you can take in order to decrease the amount of risk involved in a certain real estate investment. Here are three such risks, as well as some of the more common ways in which you can look to avoid them.
1. Underestimating Repair Costs
Those interested in taking the hands-on approach to real estate investing might find themselves personally acquiring properties to flip and either sell for a profit or rent out to tenants Real Estate Investing. While both options can be incredibly lucrative, it is important to know the types of risks associated with going this route.
The fact of the matter is that you never know what is going on behind the walls of a house that you purchase for these purposes. A property might seem sound enough when you acquire it only to have a myriad of issues going on behind the scenes.
You most likely will be working with private lenders in order to secure the necessary funds to flip. Make sure that you have budgeted the most realistic amount for your loan so that you can avoid running into some serious issues as the project progresses.
2. An Unfavorable Market
The one factor that can even take real estate experts by surprise from time to time is that of the housing market. Unfortunately, when it comes to real estate, things can turn on a dime. What was once considered to be a seller’s market can swing in favor of buyers seemingly overnight.
Make sure that you do your research on the local market in which you are investing. If you plan on leasing properties, check vacancy rates and projections in local areas Real Estate Investing.
3. Problem Tenants
Another area of concern for those leasing properties is that of unreliable tenants. Not only can you run into problems collecting rent, but a tenant is going to be less likely to take care of a property because it isn’t technically their own.
Take the time to vet your tenants properly. Ensure that they have a steady income proportionate to the amount of rent they will be paying. It is also worth looking into references from previous landlords.