Is Property Investing Safe? Does Property Investing Still Work? Great question, after all, we have rising interest rates, a looming recession, and out-of-control inflation. In this video, I talk about the pros and cons of property investing in today’s market.
According to the annual Economy and Personal Finance survey conducted by Gallup, real estate has consistently been the top investment choice for most Americans (35%) over the past ten years. As the most favored investment, real estate now ranks above stocks and mutual funds (21%), savings accounts and certificates of deposit (CDs) (17%), gold (16%), and bonds (8%).
Property owners can lose money when investing in real estate, just like with any other type of investment. When considering purchasing an investment property, be aware of these seven real estate investment risks.
Is Property Investing Safe? Does Property Investing Still Work?
The year 2022 appears to be the best one yet for UK real estate. The market is in better shape than ever and has once again shown that it is a reliable prospect. The projected growth in house price values is extremely high, despite the unprecedented disruptions of the last 18 months, and rents are at record highs.
Things to consider when Property Investing:Â
1. The Real Estate Market Can Be Unpredictable
Despite the COVID-19 pandemic, the real estate market has held strong, rising to record levels across many regions. However, many investors (mistakenly) thought that the real estate market could only go up before the Great Recession of 2008 began. The fundamental premise was that if you purchased a property today, you could sell it for a lot more money in the future.
Investing in real estate is not something you can do and forget about. Monitoring your investments will help you determine when to change your entry or exit strategies.
2. Choosing a Bad Location
When buying an investment property, location should always be your top priority. After all, neither a home nor a retail establishment can be moved out of an abandoned strip mall or into a neighborhood that is more desirable.
The factors that ultimately determine your ability to turn a profit are location-related: the demand for rental properties, the kinds of properties that are most in demand. The location that will yield the highest return on investment is typically the best (ROI). Finding the best locations, however, requires some investigation.
3. Negative Cash Flows
The money that is still available after paying for all costs, taxes, insurance, and mortgage payments is referred to as cash flows on a real estate investment. When you have negative cash flows, you are in the red because less money is coming in than is leaving the business.
Below are a few typical causes of negative cash flows:
- a lot of vacancies
- excessive maintenance costs
- high loan financing fees
- increasing rent too little
- not employing the ideal rental approach
4. High Vacancy Rates
Whether you own a single-family home or an office complex, you need to rent out those spaces to make money. Investing in real estate unfortunately always carries the risk of a high vacancy rate. If you depend on rental income to pay for the property’s mortgage, insurance, property taxes, maintenance, and other costs, high vacancy rates are especially risky.
The best way to reduce the risk of high vacancy rates is to buy an investment property in an area with high demand (i.e good location).
5. Problem Tenants
You want to keep your investment properties occupied with tenants to reduce the risk of vacancy. Problem tenants, however, may result from that. A problematic tenant may end up costing you more money and causing you more trouble than having no tenants at all.
Typical tenant issues include those who:
- Pay your rent late or not at all (which could result in a drawn-out and expensive eviction process).
- Trash the property
- Do not wait until it is too late to report maintenance issues.
- Take in more roommates (humans or animals)
- Disregard their obligations as tenants
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