Although real estate investments can be relatively safe, there are certain risks in the investment process. To ensure a positive result, it is always important to understand and manage these risks. Therefore, success will always depend on a valid risk reduction strategy that you should consider before purchasing your investment property.
1. Economic instability and real estate market
Your real estate investment will depend heavily on current and future economic conditions. Property prices and rental income can be cyclical. Therefore, if you are planning a long-term investment, you may not be able to generate positive cash flow continuously. Real estate prices may fall, real estate valuation may not meet expectations. Although you cannot predict the future, you can make sure that you understand the risks of your investments with due diligence and a thorough study of the real estate market. Economic development, political stability and new investments in your chosen field are always positive signs.
2. Slow property valuation
Although housing prices will double every ten years, this may not be the case during an economic downturn. You will need resources and patience if you are planning a long-term investment. You can also achieve a higher level of real estate valuation if you manage to buy investment property below its market value. Thus, a BMV property may be a safe long-term investment that is more likely to bring you high returns.
3. No tenants
If you invest in purchase to leave a property, tenants are the basis of your investment. Therefore, it is essential to avoid long periods of emptiness. If you are willing to reduce the rent, if necessary, you can solve this problem. By lowering the lease, you can find tenants much faster and not lose your rental potential within 2 or 3 months. By showing due diligence and buying rented property in an area with high demand, you can also increase your chances of getting stable tenants faster.
4. Unexpected expenses
If you invest in purchase to rent a property, you will have to rely on the cost of repairs and other unforeseen costs. Therefore, it is essential not only to get tenant insurance in case your tenant does not pay but also to get full insurance on the property and have sufficient financial resources to cover all additional expenses.
5. Problems with the resale of the property
As soon as you want to resell your investment property, the search for a buyer will never be determined. If you plan your real estate investment well and make a prediction, you can find a suitable buyer. Always try to choose a property in a stable area with high demand.
6. Basic principles of risk management
If you keep in mind the basic principles of risk management, your chances of making high returns will be much higher. If you have financial resources, try creating a diversified investment portfolio that will allow you to maintain positive cash flow, even if one of your investment properties does not work correctly. You also need to make sure that you carefully examine your options, exercise due diligence, make accurate cash flow forecasts, and try to buy property at a price lower than the market price.