Risks of Real Estate Investing
May 6th, 2008 | 
Author: All good things carry with them some degree of risk. The same holds true with real estate investing. Despite the promise of high rewards you should temper those ambitions with the reality that the risks involved are more often than not just as high as the potential rewards. For this reason you need to take every possible precaution in order to insure that you minimize your exposure to risk whenever possible or at the very least are prepared, financially and mentally to accept the consequences of those risks if the time comes.
The most obvious risk when it comes to real estate investing is the immediate risk of losing your investment. This risk can be a huge blow depending on how large your investment was to begin with but isn’t the worst thing that can happen during the course of a real estate investment gone wrong. While I’m certainly not trying to talk you out of investing in real estate all together it is a good idea to have a realistic view of the risks and the potential rewards.
If you are flipping houses as your real estate investment you have the potential to loose a little more as you can become injured during the course of your work. The sad truth is that many who are attempting to break into the business of flipping houses have neither adequate insurance coverage (this is true of themselves and the property in general and others that may be working on the property), the money, nor the time that a serious injury might require.
Another risk common to real estate investing is the fact that stuff happens. Market trends tumble, companies go out of business leaving towns and the local real estate market in shambles, accidents happen during the course of the work, natural disasters occur, and buyers change their minds and pull out at the last minute. Each of these things can have devastating consequences and are almost always events that are completely beyond your control as a real estate investor.
If that wasn’t enough many investors fail to have a proper inspection and find out when it is really too late that there are serious structural problems and other sorts of things wrong with the property. These things cost money to repair and cut into profits, occasionally resulting in a loss. The thing is that once you find out something is wrong with the property you are honor bound to either reveal the problem to potential buyers or fix the problems before selling the house. In the case of a flip, many major problems will undo the work that has already be done. If this doesn’t remind you of the importance of a thorough inspection I have no idea exactly what will but inspections are important for many reasons and can save a lot of time and money if you have one done ahead of time.
Do not allow the risks of real estate investing prevent you from taking the plunge. They are spelled out here to remind you that prudence and caution are wise when investing in real estate not to talk you out of this potentially lucrative field of investing. If you are interested in real estate investing there is no reason on earth you shouldn’t take the time and make the effort to learn more about its potential.
Posted in Flipping
I agree that good things often do carry risks — but you’ll never get great rewards if you do not take great risks! Great post!
Nice article. The investor’s time frame is key in today’s real estate market. Declining home values and increasing days on market make short term flipping less attractive today than a few years ago. Fully capitalized long term investors should make out very well though.
Jim Bisnett
Good information for those people who are investing their money in real estate, all people must have to read this article before invest money in real estate.
Real Estate investing is like any other investment venture to get ahead. The key to success, as you’ve pointed out is to diligently do your homework at each stage of the process. This may not guarantee succuess, but it willcertainly lower your risk factor.
I agree that every investment has its own risk, including real estate. We just have to find a way to minimize the risk.
Before reading this, I was assuming that real estate is the best and secure type if investments. You revealed some hidden truth to me and I am thankful to you for that.
It is true that housing is a less attractive investment than it once was, however if you have a lot of cash, you can get some great deals now on the foreclosed homes. You will always run the risk however, especially in a volatile market.
Only things that are risky have the potential for great rewards. However, I do think that too many TV shows make real estate investing and flipping seem way to easy.
It is a very good information for those people like me who is investing money in the real estate. Thank you so much for the post.
home value still i believe is in the market.. and this is the best investment.
Yeah I agree with you Jacqulyn! But you will never get any reward if you do not take any risk.
I do agree with your posts. Real Estate investment has it’s own risk, but we should always remember that on every business or investment we do, risk always came along. It’s better to take the risk than doing nothing at all.
These are all great points to consider when assessing risk involved in your investment.
One strategy to consider to help minimize risk and potential loss esp. for 1st time investors is to begin your flipping career with a property that is low in value. Familiarize yourself with the ups and downs before moving to the high dollar/high risk investment ventures.
Good list. I especially like it that you mentioned the possibility of injury. I bet that many flippers get hurt, either physically (from not knowing what they were doing) or financially (due to poor planning).
I like to invest in newly emerged projects because there is a lot of room to earn from such ventures. Perhaps it is useless to invest in something which already has blessed a lot of people and have grown up.
@ Jacqulyn – You are absolutely right! We have calls just about every day, I need an investment property at 50 cents on the dollar. And of course in ready to move in condition.
Investing in real estate is about the best way I have found to create wealth, but it is not without risk! First timers beware! lol
Very important point, as you say “many investors fail to have a proper inspection and find out when it is really too late that there are serious structural problems and other sorts of things wrong with the property”.
Here in Thailand many builders are masters in having a shiny polished shell and hidden under it a broken cheap structure inside. Too often they get away with it, and the buyer is facing too early and too expensive repairs.
But if you do your homework, profits are big. It’s an investors paradise here, the Thai real estate market.
There is a huge crisis going on around the country and millions of home owners have gone into foreclosure because of being overburdened by debt.
There are risks on both sides of lending and borrowing.
This website offers authoriative resources.
Live Real Estate Index
While the market is down, it’s especially important that real estate investors pick up the slack left by the influx of foreclosures. If investors manage to step it up a notch, and hold these properties as rental units for a few years until the market rises up again, then we’ll see the real estate market turn around a lot faster.
It’s a great time to buy but a lousy time to flip unless you know something others don’t. Insider information is always handy. For the rest of us it’s difficult to sell a home even if it’s priced 25% less than other homes in the neighborhood. Buy and hold is a great strategy for 2008 – 2009.
Good post, thanks. In a slower market, there are multiple deals to be had for the discerning investor.