Risk in Real Estate
inIntroduction
Real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation. Common examples of investment properties are apartment buildings and rental houses.
Those who invest in real estate also expect to generate capital gains as property values increase over the time. Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive and is highly cash flow dependent. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development.
Risk can be broadly classified into pure risk and speculative risk. Real estate investment can be classified as speculative risk in which there is an uncertainty of loss or gain. The investor can gain profit due to the increase price in real estate or suffer some losses affected by risk factor. If these factors are not well understood and managed by the investor, real estate becomes a risky investment.
Risk issues and methods to reduce risk
i) Fraudulent sale
The primary risk in real estate investment is the possibility of falling into the hands of fraudsters. Fraudsters sometimes attempt to sell a property to you that does not belong to them. There are many cases of the fraud sale of the property by the people.
This could be eliminated by you engaging the services of professionals to help you investigate the title to the property you seek to purchase and to ensure that all the documents you need from the seller are prepared, signed and collected. Investor should verify the ownership before making any huge investment in the real estate.
ii) Government or political risk
Another possible risk you may
Real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation. Common examples of investment properties are apartment buildings and rental houses.
Those who invest in real estate also expect to generate capital gains as property values increase over the time. Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive and is highly cash flow dependent. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development.
Risk can be broadly classified into pure risk and speculative risk. Real estate investment can be classified as speculative risk in which there is an uncertainty of loss or gain. The investor can gain profit due to the increase price in real estate or suffer some losses affected by risk factor. If these factors are not well understood and managed by the investor, real estate becomes a risky investment.
Risk issues and methods to reduce risk
i) Fraudulent sale
The primary risk in real estate investment is the possibility of falling into the hands of fraudsters. Fraudsters sometimes attempt to sell a property to you that does not belong to them. There are many cases of the fraud sale of the property by the people.
This could be eliminated by you engaging the services of professionals to help you investigate the title to the property you seek to purchase and to ensure that all the documents you need from the seller are prepared, signed and collected. Investor should verify the ownership before making any huge investment in the real estate.
ii) Government or political risk
Another possible risk you may