Lands and houses are usually referred to as a safe form of investment. Even when a house may be sometimes destroyed through natural disasters, the land will still be there for the owner. This shows that real estate may be one of the safest means of investment to an extent. Some may say that investing in real estate is risk free and may be hard to be affected by inflation. Though, home investment may not be risky, however, there are still things that may make a homeowner or landlord wished he had use his money for an alternative investment. These include;
Risk Associated with Becoming a Third Party.
Sometimes, due to limited funds, some persons end up buying an unfinished building that is naturally cheaper when compared to a finished structure, hoping and willing to provide more funds within capacity to complete the building. This carries some measurable amount of risk too.
In some cases, trying to get the required permission like change of ownership and sometimes, building plan from the urban/rural authorities may be difficult or delaying. As such, the project may have dragged on unnecessarily and as a result, some amount of money meant for the completion of the building may be spent on other rising pressing needs that may include continuous payment of rent.
Difficult Tenants.
Most persons that invest in real estate usually do so because of an anticipated cash flow from it, that is hoping to allow tenants fill the apartments and collecting annual or monthly rent from them. This assumption from the beginning is that an owner of a building hopes to have good tenants and will be careful on the type of persons he will allow to rent his house. The reason for this anticipation is for a steady inflow of rent payment from the tenants and one/those that will not destroy his property or create a legal tussle with him in the future.
However, with our different mindsets and our understanding of life, there is always a tendency of having difficult tenants. These type of tenants are rated as number one risk by most seasoned real estate developers, they apply much caution than others when deciding on those that will rent their houses. But, by trying to be careful of the type of tenants that take up houses for rent, just a small percentage of investors will ever face bad tenants.
There is a good chance that having a bad tenant could cause one significant legal costs if a bad tenant eventually comes your way. This is part of the reasons a landlord would love to know your past records, financial or employment status, knowledge of having police records. Some would go as far as wanting to know the reasons you are relocating from your previous place.
All these are just to carefully know the type of tenants that is coming in and to likely curb some risks of having you as a tenant.
Huge Personal Commitment.
Investing in real estate might carry with it a form of liquidity risk when compared to other investments. This is true because the amount of capital needed to start a real estate business is huge and takes huge commitment from an investor. It is difficult in cases of emergency exit from the market, to get a ready or instant buyer, some buyers who may be willing to enter into such transaction are few and it may leave the seller giving out the property at a cut out price to his own disadvantage.
Some other investments may be easily turned into cash if an investor or seller readily needs cash but, for real estate, it may take some time.
Leverage Risk.
Having known that real estate business is one that requires a sustainable amount of capital, most persons do not have extra amount of cash that may keep them going even after making an investment in a given property. These categories of persons usually rely on mortgages that are sometimes neck stifling and these mortgages extend to number of years.
Some carry high interests that may be several times the original amount of the money borrowed when paying back. To add to this, since mortgage interest can be high, it almost depends on property prices rising continuously, they don’t need to fall as a mere stagnation is capable of making an interest cost unbearable or unsustainable.
