Business & Finance Renting & Real Estate

Risks in Investing in Real Estate

Investing in real estate is a great deal for people who have extra money to invest but are afraid to make investments. It is normal to be hesitant in investing, since the money involved is considerably huge.  An average worker might not be able to accumulate a certain amount even in his lifetime. Before investing in real estate, it helps to understand the potential risks involved in it.

Generally, investing involves purchasing and managing a property. In real estate investing, a person buys a property—commercial establishment or residential building—and develops it to earn money. Therefore, one of the potential risks that an investor faces is a fraudulent transaction. This happens when the property title and the ownership are not properly verified. Thus, investors must hire legal consultants to avoid fraud.

Some properties have outdated land survey data, which can lead to adverse possession. Without accurately surveying the property before building a structure on it, there is a chance that a fraction of the land belongs to a neighboring property. In common law, the owner of the damaged property can claim for adverse possession, which ends up in a change of ownership of the illegally occupied property.

When purchasing a business, it is important to inspect the building components for system failure. Hiring real estate investment firms helps an investor accomplish the said task fast and efficiently. Prior to the purchase, the buyer also needs to obtain environmental survey and test for contaminants, in case the previous business involved manufacturing products, which process used toxic chemicals—this can pose hazards to the new business, as well.

To protect the investment from immediate insolvency, the investor must create contingency plans in case of economic downturn. One way is to choose a desirable location where the business can stand out in the competition, have tenants sign long-term leases, and have fully controlled cost structure. Real estate investment firms can perform proficient feasibility studies that can best guide buyers in their decision to invest.

Some investors get too excited to start up a business that they forget to come up with sufficient liquid or cash reserves. In effect, there is no fund to cover cost and debts for the period in which the business is just starting to recover expenses. Real estate investment firms are just few calls away to getting rid of potential cash shortfall.

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