Regarded as safe and practical by most investors, real estate continues to be one of the most beloved forms of investments the world over. Thus, the old saying "as safe as houses." The traditional belief is that real estate poses less risks and provides a solid buffer against sustained price increases. However, in the face of global economic downturns, it has become more and more obvious that real estate properties have their fair share of risks.
In this article, we explore common property investment risks that investors often encounter. Everyone's real estate journey may be different, but it's best to be aware so you can stay ready for any eventuality and protect yourself against possible losses. Take note of these investment risks:
The cash flows received from a real estate investment is a major source of motivation for investors. Stable rental payments with the promise of increase from time to time could be a landlord's sole source of income. But these cash flows are only as good and steady as the tenants who are responsible enough to pay on time and take care of the property. Unfortunately, the reality is that investors cannot always find a decent tenant. In a survey conducted to know what experienced real estate investors consider as risks, bad tenants came in at number 1.
That is why landlords should look into a potential tenant's credit scores and request for a police clearance before getting them to sign a rental contract. This is one of the best ways you can mitigate tenant-related risks and prevent possible conflicts, legal or otherwise.
Purchasing an unfinished unit seems like a cheap real estate investment, but this too is a risk you might regret undertaking. Cost-wise, you may be spending less than you normally would. Developers could also offer the right financing, taking some burden off your shoulder. However, it's one of those investments where the risks far outweigh the benefits.
Investors are playing into the hands of developers. Should their project fail to obtain an authorised permit, you will be getting the short end of the stick. You could be waiting months or years for the project to get off the ground. And if it never sees the light of day, then the money and energy spent are all for naught. Some property projects do pay off, and if you're serious about this route, do your research and plan ahead to lessen the risks.
The good thing about investment in the stock market is that there is always readily accessible and updated data, which you can use to make informed decisions. Trading platforms show you rising and falling stock values, and if you are thoroughly knowledgeable in this field, you will be able to figure out your next step by simply analysing real-time information. In contrast, there is a lot of guesswork involved in the real estate market. From rental values to newly listed properties, some key stakeholders monopolise data.
Investors would need to tap from multiple sources, weigh the pros and cons, and assess the validity of the information they're getting before they decide on anything. But thanks to online property portals, independent buyers agents and direct buyer-seller relationships, by and large such risks have been mitigated. Prices are more transparent. A Canberra investment property buyer can just look through the site or make a quick call to obtain the necessary data.
A real estate investment can be a rewarding venture if undertaken with the right mindset and extra caution. If you are willing to proceed with an investment regardless of the risks, consult an expert to help you mitigate the aforementioned risks. While there are reputable firms and independent buyers advocates who can add a layer of comfort and peace of mind to your investment property journey, it pays to be vigilant and prepared in case things take an unexpected turn. For any of your real estate queries and concerns, feel free to contact our team here at Canberra Property Solutions.