The idea of having a secure future by investing in property has been reinforced. There is no doubt that real estate investment is the most lucrative investment option, but every coin has a flip side. Apart from all the perks and cash flows that a property provides, there are some drawbacks that you shouldn’t skip. Moreover, it is a lifetime investment and would impact your present and future. Now that the remote is in your hands, analyze the property investment risks and decide wisely. Let’s begin!
Often, property investment risks remain under the veil to appeal to buyers. Further, one needs a keen eye to get into the skin of the procedure to prophesy the risks. Moreover, property investment, be it residential or commercial, is a temptation among people. So, to cool this, you need some facts on risks. Let’s dive in!
Here are some of the property investment risks
Financial Risks
Huge loans are the root cause of financial risks. Many times, people end up taking out huge loans with high interest rates. Further, they mislead themselves with rental income. But they forget that there is a wide gap between rental income and EMIs. Moreover, this triggers many other risks in their own way.
Key takeaway:
One should check their pockets before getting huge loans. And to avoid financial risks, make sure to save early and have enough for your down payment. This way, you can avoid stress and avail loans without mortgaging.
Debt Trap
A debt trap arises when you get another loan to settle your previous loan. Property investors often end up being here. They buy properties and deal in them. However, sometimes, due to legislative and market risks, they can’t fetch as much as expected from that property. This leads them into the vicious circle of debt traps. Hence, be considerate and analyze the risks throughout the procedure.
Market Risks
When prices and property rates fluctuate with economic changes, it leads to market risks. This risk creates disturbances in the cash flow, rental income, and infrastructure of the property. Moreover, market risks influence market liquidity at a huge rate. There is a lack of a continuous market and a fall in the number of buyers. In addition, the increase in interest rates and the impact of inflation hit hard!
Location Risk
Location risk goes along with all other property investment risks. It is influenced by neighborhood, sewage, road connectivity, and infrastructural advancements. Sometimes, the property is not well maintained, and there is no customer helpline. This brings a drastic downfall in rates and rental income. People are unwilling to rent the place, which brings tenant risk. Moreover, the matter can further worsen and invite liquidity risks. Hence, it is imperative to know the housing conditions at the location.
Overcapitalization
To enhance the property’s interior and exterior, investors end up being spendthrifts. Renovating the place is not bad, but to what extent you do it matters. In addition, you should plan things and decide to what extent you can improve the value of the property. Overcapitalization does not yield enough and imbalances the cash flows. Moreover, it creates a lack of liquidity for the investor in the later stages. And the vicious circle of financial risk begins. It’s a wrap!
Also Read: https://www.thebestinvest.in/steps-to-a-successful-property-purchase/
Conclusion
Risks are the ladder to success. You can’t avoid risks, but you can learn to overcome the obstacles in your way. Further, property investment risks call for the need for risk management. Considering the high prices of properties, you can’t afford to surrender to circumstances. Moreover, planning can prove to be of great help to you. To delve deep into the topic, you can refer to the quintessential book, ‘The Property Wealth Blueprint’ by Rasti Vaibhav. That’s it! We wish you good investing!
Penned by: Shruti Choudhary
(Disclaimer: All the statements are opinions and perspectives. Hence, the accuracy of the facts is not guaranteed)
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