Are you thinking to invest in real estate property for the first time? Maybe you've owned your home for many years, but now you're thinking of investing in commercial or residential property for purely investment purposes. If this sounds like you, there are three categories of risk you'll want to know about when it comes to real estate investment:
- Volatility risks: These risks relate to the rise and fall of the price of your real estate on the market. Penny stocks and startup company stocks are some of the most volatile investments on the market. Generally, real estate is considered to be less volatile, but as many investors found out 10 years ago, the real estate markets can also be subjected to frighteningly drastic ups and downs.
- Concentrated risks: When you put all of your eggs in one basket, there's some serious risk there. What if your investment property burns down? What if the neighborhood goes downhill and all the property values fall? What if real estate prices, in general, take a tumble? Real estate investors might be tempted to invest all their money in one sector of the economy -- the real estate market. Be careful with this. Diversity is the key to minimizing any kind of investment risks.
- Leveraging risks: Most real estate investors don't have enough money to simply buy a property with their own cash. These investors have to take out a mortgage loan. If property values fall, and your property is worth less than your loan, or if you lose your source of income and can't pay the loan, serious financial problems can develop.
Can you identify any other real estate investment risks? Due to these and other risks, Denver-area real estate investors may be able to benefit from an in-depth evaluation of their real estate investment plans by consulting an experienced real estate attorney.
Source: BizWest, "Is real estate investing right for your temperament?," Robert Pyle, Sep. 11, 2017