Real estate is a business where risk is ever-present. The most common real estate risks often involve unknown factors about the condition of the property and the instability of the real estate market. In some cases, especially if you are purchasing rental properties, the main risk has to do with the reputation and responsibility of the tenants you allow to move in.
Irresponsible tenants can cause thousands of dollars worth of damage in the short span of a year if they don’t take proper care of the property. Real estate insurance may cover some of these losses if you have the right type of coverage. If you don’t, you may have to pursue legal action against the tenants to recover your losses. If your insurance company pays for the damage, they may file a lawsuit against the former tenants. Thoroughly screening your tenants before the lease is signed will reduce your risk of accepting tenants that are irresponsible.
An unpredictable real estate market is often the biggest risk factor when buying a new home or commercial building. If you buy a home when the market is soaring, your property will hold its value rather well. On the other hand, if you buy a home for a low price and the market doesn’t gain enough ground or recover from the slump by the time you are ready to sell it, you may end up losing money on the deal. It’s important to keep a close eye on the real estate market for several months before you choose to buy or sell a new property.
The Property Isn’t Everything The Previous Owner Claimed
Although there are laws against fraud, owners may attempt to hide or misrepresent certain features of their property in order to make it more appealing to a new buyer. With some properties, certain aspects of the property may be in working order at the time of the sale, but break down shortly after due to age or poor maintenance. While this may not be the direct fault of the previous owner, it’s important that they be honest about the major “investment aspects” of the property like the roof, HVAC system, and fencing. HIring a professional appraiser to determine the true value of the property and all of its components will minimize this type of risk and ensure you get the most out of every dollar you spend.
Real estate risks are real. before purchasing any property, do your research to discover the true value of the property you’re interested in. Always hire a reputable appraiser to ensure you know the exact condition of the property and all of the features it contains. Whether you plan on buying a property to rent or one to live in, be thorough in finding out all of the information you need by working with a reputable real estate agent.