Risks of Real Estate Investing

real estate

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 been 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 to 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.

About John G.

I'm a full time real estate investor in NW Ohio, investing since 2007. I specialize in Wholesales, Subject 2's, Rehabs, Mentoring, Private Lenders and web based marketing. I'm your personal Residential Real Estate Engineer

4 Comments

  • 20 Oct 2011 | Permalink | Reply

    Super post! Just like your blog professionalism! Keep up the good work.

    • 29 Feb 2012 | Permalink | Reply

      Thanks Alexander, it’s encouraging when I read comments like yours.

  • 28 Mar 2012 | Permalink | Reply

    John,

    For me as an investor I feel comfortable with the risks. Primarily because I understand the risks. I have multiple contingency plans for every property I buy and given where Real Estate is right now – it is a must buy.

    After watching the market take a 60% haircut in 2008 – I feel much safer and in control of my destiny in real estate. For someone just starting the key is start small, don’t over leverage, and get educated.

    Good blog – Take Care,
    Ch,.

    • 29 Mar 2012 | Permalink | Reply

      With time I believe the level of comfort comes but you must stay educated and know what you were doing.

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