Real estate will almost always appreciate over time, making it a solid, steady, and reliable investment for those who are patient enough to wait out a slow market, strong enough to withstand unreliable tenants, or strong enough smart to shop in the right place at the right time. . However, there are risks that can decrease the return on your investment.
If you’re considering investing in real estate, read on for a breakdown of potential real estate risks and how to avoid them.
Risk 1: the property will not appreciate in value
If you’re thinking of selling a property (meaning buy, fix, and sell immediately) within the year, this is a big risk, especially if you’re buying in a saturated or sluggish real estate market. It’s true that when prices are low, you can find a good deal, but that also means you’ll have to work harder to sell.
When the housing market is depreciating or appreciating at a slow rate, consider holding off selling until the market picks up again. In the meantime, if you can’t keep the property on your own, you can choose to rent it out, even at below market price.
Risk 2 – Tenants will not come
If you are buying real estate with the intent to rent it out, look for an area that will attract potential renters. Try to get closer to an urban or town center, close to public transport and within walking distance of local services.
A vacant property is a property that’s losing money, so lure tenants in with perks like in-unit washer-dryers, included hydro, free wireless Internet, or a signing bonus.
Risk 3: Tenants are more trouble than they’re worth
It’s true that a vacant property is one that isn’t getting its investment back, but problematic tenants can also cause big problems. Unpaid rent can put you down a long and expensive road to eviction proceedings, while property damage can cost you thousands of dollars.
Minimize this risk by screening tenants through a property management company or by doing extensive screenings yourself. Ask for references, both work and personal, proof of income, and permission to do a credit check, which can show you the tenant’s history and ability to pay bills on time. A credit check will usually cost you around $40, but it’s worth it in the long run.
Risk 4 – Disaster strikes
A natural disaster and fire are real risks for real estate investors. Your best protection against unforeseen disasters is insurance. In addition, you can also buy mortgage insurance (different from private mortgage insurance) that can help you with your payments in the event you die, become ill, or are injured.