What are the risks of real estate investments?

There is no such thing as a perfect investment. Depending on the quality of your asset types, each investment has its own advantages and disadvantages. Directly investing in stocks, for instance, can be subject to high market volatility, while investing in mutual funds can be subject to credit, interest, country, and currency risks. So, the best way to mitigate your investment risks is to diversify. As the old adage goes, you should not put all eggs in one basket.

Real estate is one good way to diversify with your assets. Unlike other investments, real estate is effective in battling against rising inflation rate. In fact, the value of real estate is almost always expected to rise, as more and more people and companies demand for personal and work space. Apart from that, real estate mortgages are not adjusted in the event of inflation, so what you are getting is an actual decrease in the value of your mortgage.

However, because there is no perfect investment, real estate has its own set of risks. According to http://www.gapslegal.com/real-estate-litigation/, one risk real estate investments have is the risk of litigation. Because real estates are large assets, one small defect can result in profound financial losses, and so pursuing legal action might be necessary. Among the reasons that may need the intervention of court is boundary disputes, wrongful foreclosure, and easement disputes.

Apart from the risk of litigation, real estate owners also bear the risks resulting from a tenant’s misactions. Landlords are vulnerable to unpaid rent, property damages, eviction disputes, and breach of contract. To protect your assets against these issues, you should look for tenants that are credible and with good credit standing. You should also consider creating long-term tenancy agreements to ensure good return on investment.

Finally, a real estate property can only be as valuable as its location. For instance, an asset situated in zones where public transportation, roads, and other basic services are present can provide good ROI. In underdeveloped areas, however, the return could be very slow.

Leave a Reply

Your email address will not be published. Required fields are marked *