Buying an investment property carries with it great potential for creating wealth, however an investor should do their own due diligence to examine the risk in investing in real estate.
Buying An Investment Property Is Not Without Risk
These real estate investing risks may include, but are not limited to:
- Rising interest rates – Affects your mortgage payment and your ability to cash flow on investment property. Can turn a positive cash flow property to a negative cash flow property depending on your financing
- Decreases In Rental Income – After buying an investment property you thought you could rent the property out for $1000 but had to settle for $925 instead. There are times where you will need to lower your rent price just to be competitive enough to rent out the property.
- Increases in Rehab / Repair Costs – Goods and services don’t get cheaper, they get more and more expensive over time due to inflation. Make sure you factor in your repair costs when you are buying an investment property. Also make sure you calculate vacancy costs (When your investment property has no tenant paying the rent!) into your overall costs as well.
- Softening of the Real Estate Market – We all want to believe that when investing in real estate, everything goes up in value. Appreciation (increase in value of your investment property) can go UP or DOWN. There is a chance of your income property going up in its value or down in its value. Keep that in mind whenever you invest in real estate. As hindsight over the last decade is 20/20, never assume that all investments in real estate will go up.
- Trouble Finding Good Tenants – Even after buying an investment property you can still have problems like finding what you thought were good tenants that turned out to be bad. Some income property tenants take really great care of your property while there are some who don’t do such a great job and can leave your home in a mess when they leave.
Know The Risk Levels When Buying An Investment Property
Any real estate investor should evaluate his/her investment objectives and determine risk levels associated with the investment property they are considering to purchase.
Real Estate investments are not guaranteed or insured and past performance is not a guarantee of future performance.
Manage The Risk For Greater Rewards In Buying An Investment Property
With that said, buying an investment property and owning it for many years will give you the experience you need in becoming a real estate investor that is knowledgeable and well versed in the art of managing risk for achieving greater returns.
Regarding the legal and tax consequences of owning an investment property Real Estate Investors should always consult their own attorney or tax advisor.
