RISKS IN REAL ESTATE AND HOW TO AVOID THEM

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Today, we are dishing out the Risks in Real Estate and how to avoid them.

First of all, it is important to know that investments involve certain basic risks. That is, the possibility of suffering adverse consequences. So it’s not just in the real estate sector that risks are involved. But let’s take a look at the risks in Real Estate, which are:

  • General market risk
  • Bad location
  • Property depreciation and damage
  • Construction delays
  • Liquidity
  • Cash flow
  • Tenant risk
  • Structural risk
  • Bad location
  • Management risk
  • Leverage risk
  • Seasonal property and property in need of extensive renovations.

MARKET RISK

The market risk is the possibility of fluctuations in property value and rental income due to changes in economic conditions and many more. General market risk involves:

Unpredictability

Contrary to popular assumptions, a real estate investment does not always move in an upward direction. The industry is somehow cyclical in nature.  This simply means that market changes could happen at a certain point.

The real estate sector is vulnerable to fluctuations in supply, demand, demographics, interest rates, government policies, and natural disasters. Some investments that may have a high demand during one period could suddenly hit below-market value with transitions in the housing market.

To avoid the Market Risk

You must diversify your property portfolio by investing in different types of properties (apartments, condos, townhouses, and commercial buildings) to give you some wiggle room in case the market for one type of property suddenly drops.

You must conduct a market analysis, a study on the economy, and an inspection of a property, as well as schedule consultations for financial projections, to predict the success of a real estate investment and the best time to put it in the market.

LOCATION RISK

Significantly, location is what determines the value of a property. While it is important for your property to be in a good neighborhood and in a good street location, you should also take into consideration the other intangibles that come with the location. You should consider the crime rates, unemployment rates, and declining population in that location, which can greatly increase the risks you may incur with your property investment.

Purchase properties in different locations to diversify your investment opportunities. If the market value of properties in one location drops, you can still earn from others in other locations.

TENANT RISK

A landlord’s worst nightmare is having an inconsiderate, problematic, and destructive tenant who not only delays renewing rents but also damages the unit or disturbs other renters.

Sometimes, calls or messages are not enough to address the situation. To deal with problematic tenants, it’s better to take early measures. Some tenants are so destructive and problematic to deal with.

To avoid this, you must run a thorough background check and screening before renting out your houses to tenants. Make a strong legal agreement that involves a Lawyer. Be sure you’re renting out your house to people who have nothing to do with a criminal record.

PROPERTY DAMAGE AND DEPRECIATION

Damage to property premises can arise from careless tenants, a lack of maintenance on your part, unexpected hazards (such as fire, robbery, or vandalism), and natural disasters.

  • Lack of maintenance—think tree branches hanging dangerously, an unstable foundation, faulty wiring, inefficient plumbing, or cracked walls—can cause accidents. This can make you liable for the possible hospital bills of your residents. If the cause of damage is natural disaster or unexpected event, you may not be able to prevent them, but you can take tangible steps to minimize the costs of these events.

To Avoid This

Property insurance can limit the risk of disasters and cut down on losses. The most crucial factor you must consider when determining the coverage of your home is its location.

  • Avoid real estate investment that is situated in a flood-prone area, close to frequent forest fires, or threatened by landslides. Insurance can help you cover losses in case these unfortunate events take place.

TO GET MORE INFORMATION ON THE REAL ESTATE BUSINESS,

visit our website, www.budiplusproperties.com

Send us a mail on [email protected]

Call or send us a message at 08146702129.

You can also walk into our office at No. 14 Ojike Street, by Azikiwe Umuahia.

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