Investing in real estate can really be a rewarding experience once you do your part well. And when I say do your part, it means putting some time and effort in looking for the best deals out there, incorporating some due diligence, and continuously increasing your knowledge about real estate investments.
Here we discuss some of the common risks involved in real estate investingand steps we can do to minimize them.
1. Interest Rate Risk
The interest rate at any given time fluctuates, depending on local and global economic conditions. Therefore, your monthly amortization may either increase or decrease after the set lock-in period. It is therefore advisable to go for the option with a fixed interest rate for the longest period of time possible. This is to hedge you from the cost of sudden increase in interest rates that may leave you unable to pay for monthly dues. After all, you don’t want your property to end up in the foreclosures listing right?
2. Tenants From Hell
This is one of the most common problems that owners encounter when renting out their properties. And this is why due diligence is very important in screening your potential tenants. Always check for their capacity to pay and if possible, do a background check on their lifestyle to see how well they handle their own finances.
3. Going All-in
As investment gurus always say, never put all your eggs in one basket. This is also applicable in real estate investing. Don’t put all your life savings in one property, especially when you haven’t done your due diligence yet. Go for properties that suit your budget and won’t leave a hole in your pocket. Think about what will happen if you suddenly lose your job and can’t pay for your mortgage. Therefore, it is vital that you manage your finances well and invest only what suits your risk appetite.