Investing in real estate is generally considered a good and safe decision. Owning properties does come with its own risks, however, which are important to understand. Knowing the risks can help you know what you can do to protect yourself and your money!
Main Risks in Real Estate Investing: Liquidity
One of the risks of investing in real estate is liquidity. Liquidity refers to how easy it is to return something to the market in exchange for cash. In real estate, there is no guarantee that you will be able to sell a property for a profit. This lack of liquidity can put you at risk if you need to sell a property quickly for the cash. The good news is that another way to access capital with your real estate investments is either through a line of credit or a home equity loan, so take these into account when you encounter this problem.
Owning real estate investing can pose more risks because you become liable for the properties you own. One of the easiest ways to protect yourself as a property owner is to purchase properties through an LLC. An LLC offers asset protection for real estate and helps avoid double taxation. LLCs protect you personally should you have to divest yourself of a property. If someone is injured at a property you own in your name, they could sue you. However, if you own property through an LLC, you can use homeowners insurance to cover their injuries.
Main Risks in Real Estate Investing: Market Risk
In real estate, there is also a risk in what markets you choose to purchase properties in. The market areas in real estate are referred to as MSAs or Metropolitan Statistical Areas. Usually encompassing a major city and its surrounding region, MSAs provide information about what the market is like in those areas. Location is one of the most important things about real estate, so it is good to gather as much information as possible about the area you are looking to buy in. Consider factors like population growth, real estate prices in the surrounding locations, and planned new developments that would make properties be a good buy.
Real estate investing can have great returns and is a good way to make passive income. Being aware of the risks of investing can help you make better choices in what you buy and how you invest. That way you can worry less and enjoy the rewards more.
Read this next: Why an Inspection is a Critical Part of the Home Buying Process
Steelbridge Realty LLC is a Licensed Real Estate Brokerage that utilizes cutting-edge marketing techniques and data-driven Real Estate solutions in today’s ever-changing environment. Our group of professionals have decades of experience and have navigated through many business cycles. Our diverse background gives us the tools to guide people towards successful decisions.