Risks of Real Estate

Since there are risks in everything worth doing, risks need to be evaluated beforehand. I created this page to get the risks associated with investing in real estate out there for you so you can start evaluating them now and together you and I can discuss them and discuss how to avoid them.

Property damage by tenants or others.

The risk of tenant damage can be minimized by hiring a property manager that has a good screening process. In the number of years that I have had rentals I have not had a single incident yet, but have been very careful to hire property managers that have a good screening process. To minimize the risk of damage to my rental properties by others or even by nature, I use insurance. It is a cost I wish wasn't necessary, but while it is, I prefer to use insurance to minimize the financial impact that severe damage to my properties could have.

Not being able to rent out the property.

This is a simple function of two things: 1) Supply vs. demand and 2) How nice your property shows to perspective tenants. If you are not getting calls on your property or serious interest in it, your price is too high or you need to do some touching up to the place. A little cleaning up goes a long way. On the converse, if it rents within the first week every time it comes available, you may consider raising the rental rate next time because you are probably charging too little.

Overextending Yourself.

Too much leverage or leverage used improperly can lead to overextending oneself beyond what they can pay each month. Real estate is not a highly liquid investment vehicle and sometimes takes a month or two to sell and close even when priced just right. Cash reserves and liquid assets help to lessen this risk and need to be considered when planning an investment strategy.

Not hiring the right property manager.

This is where a good number of people go wrong. Having an expert property manager will save you so much grief and heartache. Most people who have real troubles with their rentals have not done enough research in hiring the right person to manager the property for them. Some people prefer to manage their rental properties themselves. However the successful ones are those that then make themselves an expert property manager so that they can avoid learning the hard way on the vast number of lessons there are to learn about property management. If this is what you prefer, please consider purchasing a property management book or two so that you can learn from other's mistakes without making them yourselves. I recommend Landlording, by Leigh Robinson.

Doing Nothing.

This may be the biggest risk of all. Those who risk nothing, risk everything. That doesn't mean you have to invest in real estate, but it does mean that you need to spend some time planning and preparing for the golden years. The more time you spend planning and preparing, the more time you will likely have to spend on the golf course or island beaches. The less time and effort you spend preparing, the more frustrating the golden years are likely to be.

As a real estate agent and an investor myself, I deal with these risks and help manage them for my clients and for myself on their purchases. Don't let these risks get you down because nothing worth doing is risk-free. I will be there to help you through the process of understanding investing conceptually, and when you are ready, together we will find the type of investment purchase that fits your investment strategy and goals, and then when you are ready, we will do it again.