Question

What are some of the ways to minimize the risk involved with buying real estate? And how you can minimize some of these specific risk?

Answer 1

Some of the risks involved with investing in real estate and how to minimize them are as follows:

• One major risk is paying a steep price for your property: No matter how good an asset is, it can still be a very bad investment if you end up paying too high a price for it. In order to minimize this risk, one has to be aware and well researched. At the end of the day, it is simple supply and demand. So, if the demand is too high in the market presently, you might want to wait. It is always better to enter the market when it is down and valuations are attractive.
• Structural issues with the property: This is very common in real estate. After buying a property, investors find out structural issues such as ceiling problems, electrical and plumbing issues and many more. So, it is better to thoroughly examine the property that one is looking to buy. Maybe even get an expert opinion.
• Vacancy risk or low rentals: Many investors buy a property with the intent of renting it out, whether it is for commercial or residential purposes. There always remains a risk of not being able to attract tenants or fetching a lower than expected rental income. One way of minimizing this risk is to pick a good location. Research the market really well, understand the trends and try and figure out areas that will attract interest in the future.
• Cash flow problems: Real estate investing has a number of hidden expenses and taxes that can create serious cash flow problems for the investors. Always having a contingency fund and managing expenses and taxes well can help minimize this risk.