How Best To Manage Risk In Real Estate Investment

Before investing in real estate, you should be aware of the possible risks. Like any other major investment, there will always be risks involved. As the real estate agent, your job is to disclose all the risks and potential rewards to your client. Your clients will trust your professional opinion and experience to help them make a smart financial decision.

What types of risk are present in real estate?

The main six types of risk associated with real estate investment are:

  • Structural – Financial structure of the loan
  • General Market – Unpredictable ups and downs of the housing market
  • Financial – How much debt will it take to purchase property versus return on investment?
  • Asset-Level – Low risk vs. high risk investment (ex: apartments vs. hotel)
  • Legislative – Change in government regulations
  • Location – The area surrounding the property

The most common specific real estate risks we see include:

  • Bad location
  • Hidden or missed structural damage
  • Problem renters
  • Negative cash flow
  • Periods of vacancy
  • Uncertain housing market

How do you reduce the risks in real estate?

Even though some risks will be unavoidable, there are ways to assess and reduce risks when investing in real estate.

  1. Research – Take your time to analyze the data and market for the area the potential investment property is located. If local to the area, you may be able to pull together the information for yourself, but if you’re interested in a property in an unfamiliar city, consider finding a professional in that area to work with.
  2. Talk with your Financial Advisor – Talking with a financial or investment advisor about your financial and investment goals is important. A financial professional should be able to go over your finances with you and help you make the best decision.
  3. Inspect – Have a thorough inspection conducted of the real estate property as well as a credibility check of the seller and other involved parties.
  4. Think Long-Term – Will this investment be worth it long-term? Is the surrounding area expected to increase in value? Is it an up and coming area? Are you willing to manage the property, tenants, and associated risks long-term?

As a real estate agent, how do I help my clients make the best decision?

If you’re new to real estate or considering a career in real estate you may be wondering how to help your clients with major financial decisions like these. We would love to guide you on your journey as a real estate agent through our online classes. Our classes are taught by real estate professionals with real experience in the field. Instead of just an online class, our classes are available on Zoom or with access to instructor-led videos.

We want to make sure you succeed as a real estate agent and learn everything you need to know and more! Give us a call at (574) 551-0316 or visit the contact page to talk with one of our team members today!