From risks to rewards, real estate investment has been a boom industry and a luring attraction for countless individuals. With housing market fluctuations and financial uncertainty plaguing the market, many investors may prefer to use caution before plunging into the possibilities. Read on about financial protection for these investment options.
Although rental properties, land investment, and personal real estate ventures are commonly viewed as “safe” choices in the investment world, there are still risks involved. Several aspects of real estate ventures are often the last ones considered when a “good deal” appears on the horizon, including important details that any new investor should consider.
Real Estate Taxes and Write-Offs
When real estate properties or resale profits are at their height, the risk of real estate investment seems at its lowest point. The hazards, however, are still real and waiting to challenge investors during market tumbles and economic downturns, with unforeseen hazards from taxation and debts.
While tax incentives exist to encourage rental properties, empty houses without tenants or upkeep quickly spiral into a headache for owners. Investing time and money maintaining one or more homes can be a financial headache, especially with no tenant revenue to aid in the process.
Potential real estate hikes and property taxes also pose a problem for investors whose rental properties are now unprofitable and in some cases, in need of substantial investment to repair damage or renovate tenantless structures with dried-up rental capacity. Undesirable rental properties can spiral into money pits at worst, and break even financially at best for inexperienced real estate investors.
Financial Protection – Debts and Loans
Real estate’s risks are incurred partly from loans and invested capital involved in the process. While those investments seem like necessary hazards for reaping a profit, those decisions can become problematic when the market declines, leaving properties “under water” with dimmer prospects of future profits.
Investors must be prepared to weather rental property loan payments and property upkeep even when dreams of long-term payoff seem dim. If the property looses tenants or exceeds the owner’s monthly finances, then investors are at risk of losing it unless they enter the venture financially prepared to see it through the worst of market experiences.
“Flipping” Houses and Other Risks
The practice of “flipping” houses, or making quick real estate turnovers was a popular trend at the height of market values. While economic upswings make real estate flipping a tempting investment, the risks involved form an expensive wager beyond stock market moves.
Likewise, the cry “location, location, location” also holds sway over property values. Investors should be aware of housing trends and future projects within the rental property’s neighborhood and community, to avoid ending up with a great property whose value is erased by surrounding properties and troubling social and economic issues.
Investors who weight the risk and are still willing to take the plunge may be rewarded long-term with financial gains. A future market recovery will find many investors who have weathered the storm and acquired a few properties with significant value. Potential investors, however, must weight the risks and rewards of property investment individually before venturing capital for possible future gains.
This has been an article about financial protection of real estate investments.