If you are investing in real estate, you face specific risks compared to other investments. Therefore, as part of preparing to build a real estate portfolio, it is important to gather information about these risks. In this article, we will briefly discuss why real estate investments are a good choice and talk about the risks that specifically come with real estate investments.
From the moment you start building a career, you are also faced with building a pension. Because pension funds are not always stable and savings no longer provide you with any profit, an increasing number of people prefer to invest in real estate. Real estate investments offer security in the long term, assuming you ensure sufficient diversification in your portfolio. Unlike other investments, real estate investors face specific risks.
The first and most distinctive risk, compared to other investments, is the risk of vacancy. As an investor, you use financing or your own assets to buy property in order to sell or rent it afterwards. It occasionally occurs that a property cannot be sold or rented out soon enough, leaving you as the property owner responsible for the costs. If you want to avoid the stress of finding a buyer or tenant, you can also invest through a real estate fund. As a result, you are not the owner, nor responsible for the property. Your investment is used by the real estate fund to buy, develop or renovate real estate projects. The annual rental income from these projects subsequently provides a return.
Another major risk in the real estate industry, as with other investments, is market risk. This is the risk of severe fluctuations in the value of your investment. These fluctuations are usually driven by developments in society, recent news on changes in regulations and laws, interest rate increases due to economic changes and the value of materials. On the other hand, if the value of the property goes down, the investment will decrease in value. The value of real estate is determined by several factors. Therefore, it is always important to ensure sufficient diversification in your real estate portfolio.
High maintenance costs
Lastly, as a real estate investor, you may run into the risk of high maintenance costs. Should the property become vacant, the risk of vandalism will also increase. If the property is rented out, there is a risk that the tenant will not treat it properly. In all cases the property owner pays for the repair or renovation costs.
If you are planning to invest in real estate, then proper preparation is essential. RSG makes investing in real estate easier by being transparent about the conditions. Additionally, we are happy to lend you our expertise and work with you to identify your possibilities.