Real Estate Investing - Associated Risks

While real estate investing can be a reliable way to see a steady return on your investment, there are associated risks. So, before you jump at the next foreclosure auction or real estate bargain, keep reading for a breakdown of the risks associated with your potential investment.

Returns Can Vary

Unlike a GIC (Guaranteed Investment Certificate) or Guaranteed Savings Account, the returns on a property investment can vary. Typically, the average house in a regular market will appreciate at abut 8 to 10 percent a year, but that can vary depending on how long you sit on the property, the local marketplace, nearby foreclosure rates and competition.

Your Cash is Locked In

Contrary to what a number of late night TV real estate gurus tell you, real estate investing is not a quickly-in and quickly-out business. It takes time, and while your real estate investment appreciates and matures, your cash is locked in to that investment.

In case of an emergency, alternate investment opportunity or big family expense, it’s not always quick and easy to pull your cash out of an equity-based financial commitment.

You Have to Borrow to Buy

Unless you’ve amassed huge savings or have a lot of disposable cash to play with, you’ll most likely have to borrow or obtain a mortgage to get into the property investing game.

You will pay interest on that money and it’s an acceptable risk, but you’re also playing with your own credit rating and debt-to-income ratio by doing so. Unlike a traditional investment opportunity where you invest your own cash, this type of investment requires you sign a commitment to the bank. If your investment doesn’t pan out, you or your credit rating will still be responsible for the outstanding balance.

Property Liens and Title Problems

Unless you have a good real estate attorney and quality title insurance, you could be at risk when buying a property. If the property has a tax lien against it or an outstanding building code violation then you, the new owner, will be responsible for paying that back.

In turn, you need to ensure that the person selling you the property actually holds the title to it. Obtaining a Deed Warranty and title insurance can help prevent against title fraud.

Structural or Building Problems

Without a thorough, quality home inspection done by a professional inspector, you could be walking into a property that has major structural or termite problems – meaning the investment could wind up costing you a lot more than you initially expected.

Real Estate Investing - Associated Risks