Working in real estate comes with the risk of making many investments – whether that be making investments in people (clients and agents) or investments in properties.
Nowadays, the best CRMs for real estate agents have the availability of various accounting management softwares integrated into them, but you still need to have an idea of the risks involved with investing.
Risks in Real Estate Investment
It helps to remember that dealing with money can be risky and that deals can become volatile if the risks are not taken into account. Let’s take a look into the risks!
Property Maintenance
The property itself is an investment and you need to always keep track of how it is doing. Finding a potential client to buy up a home is great and all, but if you promise a fully functioning home which has now deteriorated – it will look bad on you and you might lose the potential client.
On top of that, not maintaining a property you are trying to sell reflects poorly on your company as well, apart from the obvious lack of safety in the property. Make sure to always give a good impression by keeping the property in top condition.
Market and Economic Movement
The real estate market can be a whirlwind for people, it moves up and down drastically and without warning as well.
Market volatility can occur due to various reasons, such as interest rates, demand – alongside this the economic conditions can also affect property values.
Overall, these factors always need to be kept in check in order to make smart decisions when it comes to real estate investments.
Laws and Regulations
The real estate market’s bureaucracy can be haunting, not to mention become quite overwhelming too.
There are various issues that can come up when dealing with properties:
- Permits and License requirements
- Tax changes
- Government regulations
- Zoning Issues
- Land Use Issues
These are just some of the prominent issues of real estate laws and regulations that can come up when dealing with properties. To make smarter choices in your investments, look deep into a property’s history before scooping them up.
Interest Rates
Interest rates are significant when speaking of property and investments. A change in interest rates can completely change the viability of people’s ability to take loans, pay mortgages and ultimately buy a property.
Increases in interest rates negatively affect the borrowers and decreases negatively affect the lenders. Dealing with interest rate fluctuations when making investments can be tough but there are some strategies:
- Flexible financing options
- Diversifying investments
- Legal Help
- Constant maintenance to preserve asset
Money Requirements
A lot of times people sell their properties at lower prices due to a lack of liquid cash. Liquid cash refers to cash that is available on demand, whether that be tied up in bank accounts or money that is in cash with them.
For other avenues of business, people can sell their stocks in order to get money, however, the real estate industry moves faster than those industries, and choices and decisions need to be made fast in these situations.
Tenant Issues
Properties that you have invested in can go to waste if they just lay around without having any use. For example, if you have bought a home and no one is living in it, it can be a wasted opportunity for housing tenants, and this can go for years.
However, if you do get tenants to live in the property for a bit of time, it can get you a ROI (return on investment) meanwhile of course, but it can also cause issues if the tenants are problematic.
Problematic tenants can cause various issues:
- Damage to the property, devaluing it
- Fail to report needs for maintenance, furthering the problems
- Lie about number residing in the property by housing others
- Do not pay the bills and rent on time or at all, and these problems often lead to legal issues causing an unnecessary waste of time and money
- Do not fulfill the responsibilities of a tenant
Vacancy Rates
Investing in a property and filling it out with tenants till you are ready to sell is a common practice in real estate, and it is a sensible one. However, there is the issue of a high vacancy rate causing issues in real estate investing.
However, there are ways of reducing the risk of high vacancy rates in real estate:
- Get your property out there. Advertise and promote the property so that people who are looking for homes know that yours is available
- If you have tenants moving out of your property, make it available for new prospective tenants to view as soon as you get the notice from your current tenants
- Provide proper services such as maintenance, among other benefits in order to keep the tenants happy to live at your property
- Be honest and transparent with the tenants to garner a healthy relationship with them, so they know you are on their side
- Have competitive rental rates, none that are too high for people to not consider, but not too low so that you do not get value out of it
Conclusion
Investments in general are tricky in real estate, but to get ahead of the game as a real estate agent, smart investments are necessary and showcase your skills and understanding of the real estate world.
