Major Risks in Real Estate Investments


Date: 2-May,2019Last Updated: 10-February,2021

Risks are part of almost every investment, and real estate is no exception! However, learning the types of risks in real estate will only empower the customer!

Investments are similar to a coin, both the sides come with benefits & risks. Growth and Risk always go hand in hand. Possessing the ability to make intelligent decisions about investments helps sustain short-term risk and manifests long-term growth.

Real estate investments are a unique choice to reap growth led benefits on short-term and long-term investment options. The investor's acumen for making the right decision at the right time is quintessential for the prospects of any investment.

Investments can be very dynamic, so it becomes imperative for an investor to be pragmatic about the fluctuations in the investment's financial status. Focusing on real estate investment strategies, can help in determining the future ability of the investment to perform against a volatile market is critical.

The Different Types of Risks In Real Estate Investments:

Real estate investments have been known to be safer compared to other investment options. Thorough scrutiny of the various factors helps one understand the scope of the investment. These factors decide the fate of any real estate investment. If managed right, any real estate investment can be profitable, else it can be risky.

Let's find out how and why! And fix up a proper real estate risk analysis before you start investing!

The elements factoring on real estate investment risk are as follows:

1. Location:

A property with prime connectivity, numerous travel options, and high-security standards is said to be in a prime location. It is immaterial if the property is for living in or investment. The locality of the property plays a huge role.

2. Unpredictability:

Real Estate is one of the top contributors to the economy. As the saying goes, "the best investment on earth is earth" real estate is the largest asset class in the world! But there are cons too for being so entwined within the matrixes of the economy. Every tremor that hits it will create an even more volatile market for real estate.

3. Finance:

Ascertaining whether the financial aspects of a property are transparent is critical. The ownership, medium of purchase, pending transactions, valuations, taxation, and additional costs involved must be known to the homebuyer before making a decision.

4. Titles and Approvals:

One of the most familiar types of risks in real estate to the common man. When the sale between the homebuyer and the seller is complete, the buyer receives certain documents from the seller. These documents are the Title deeds of the property. Title Deeds are the ownership documents valid in all land institutions that guarantee the ownership of the mentioned property to the person in possession of the title deeds. The property must have approvals from all concerned authorities that assure the safety, legality, and security of the property. Any property must have required permissions from the municipal, government, police, and tax authorities that certify the property as legal and compliant property.

5. Liquidity:

It is one of types of risks in real estate, everyone's aware of. Real Estate is one of the long-term asset classes with the least liquidity rates in the market! To yield the proper Return on Investment, it will take even years together. However, the benefits of the same would often be high to overshadow the risk!

6. Size of the property:

Many metrics define the value of a property, out of which one is the size of the property. Size plays a role in the growth, ability to expand, and future scalability of the property. Scrutinizing on the property's worth and credibility involves determining the value of the property based on the size and standards of construction.

7. Appreciation and Rental Yield:

The resale value of a property determines the resale value. Resale value has factors like standards of construction, age, health, standards of living, travel options, and connectivity. Rental yield is the returns that the owner gets from the rent collected. It is the ratio of the yearly rental income to the total amount of investment.

8. Delivery on time:

The most critical factor of all is the timed delivery of the property. When the developer or the seller promises delivery of the project on time, it must be ensured that the promise is kept. Delay in delivery can mean loss of revenue and the value of a commitment in the market.

9. Standards of construction:

The scope of the property is defined by the standards of the building, followed by the property developer. The value of the property remaining consistent relies on the criteria of construction observed.

10. Developer Reputation:

Every buyer must first determine the reputation of the developer of the property as a good developer ensures quality and reliability on the construction of the property.

Like any investment, properties also have certain factors that can make it a positive or negative investment. Therefore, it is critical to understand the different types of risks in real estate. Home Buyers in Bangalore enjoys the availability of top-quality projects by best developers where real estate investment risk would mostly be low!

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