The Risks Of Real Estate Investing: How To Avoid Them

What are the most significant risks of real estate investing? How can you avoid and champion them this year?

While real estate is considered one of the safest and lowest risk investments. No investment of any kind is 110% risk free. Of course, the biggest real estate investment risks, and for anything in life for that matter, are what you don’t know. It’s what you don’t know that you don’t know that gets you.

Providing you know what risks exist, no matter how small, you can prepare, minimize your exposure to them, and beat them.

So, what risks of real estate investing do you need to be alert to? What can you do to champion them?

Fraud

There are many types of fraud in the real estate space. There is mortgage fraud, title fraud, forced placed insurance fraud, foreclosure fraud, and more.

The number one way to avoid these risks of real estate investing is to begin by selecting the right people and real estate investment firms to work with.

If you start by vetting your advisors and vendors, then not only will you avoid fraudsters, but they will provide an additional layer of insulation and expertise to protect your assets from third party fraud.

Paperwork Mistakes

This may sound like a minor risk, but it can actually prove to be one of the most expensive.

Missed bills and notices or alerts can give way to liens and loss of property due to mistakes. Incorrectly completed and recorded closing documents can yield surprise tax bills for hundreds of thousands of dollars that should not be owed.

It’s extremely important to always read all of the fine print, to double check the numbers, and open the mail promptly.

Property Management Liability

Income property investments bring another level of risks in real estate investing.

This can include regulatory risks, navigating diverse and fragmented landlord tenant laws, and managing the threat of frivolous and malicious lawsuits from criminals and opportunists.

From delivering the right notices to tenants on the right days to structuring deposits and rents correctly to daily customer service interactions, advertising compliance, and discrimination, there is a lot involved.

It is a job for a team of full time professionals who stay on top of changes and monitor compliance daily. That means having a great third property management company to take care of your assets.

Cash Flow

When it comes to passive income, and cash flow real estate investing, one of the most obvious concerns is consistency, reliability, and predictability in money flowing in.

Experienced management can absolutely make all of the difference in balancing the length of tenancy and rental rates, operational efficiency and costs, and ensuring things run as smoothly as possible.

Diversification is key. Whether that is operating 100 individual units or several multifamily apartment buildings in different areas. It is the number one way to champion this potential issue.

Then, of course, it is always prudent to have capital reserves to float any temporary stalling of income too.

Value Fluctuations

Everything is always fluctuating in value. Some things are far more volatile than others. Like publicly traded stocks and cryptocurrencies. Those types of things may also have no floor. Meaning you can be left with zero.

The beautiful thing about real estate is that it is a hard tangible asset, which has so far proven to always go back up in value, and exceed previous valuations.

You can also reduce your real estate investing risks here, by buying right, keeping a cushion of equity, being sure your property investments can still deliver the same cash flow every month, regardless of paper valuations, and knowing when to refinance to recapture appreciation, and when to exit.

Summary

Real estate may be the safest place for your money. Yet, there are risks of real estate investing. Championing them is all about knowing what they are, and how to prepare and minimize them.

Do this, and you will sleep well, be able to invest with confidence, and enjoy much higher overall returns.

Have more questions about these topics? Get in touch with one of our Greystone real estate experts today.