{"id":3060,"date":"2022-11-15T18:25:00","date_gmt":"2022-11-15T18:25:00","guid":{"rendered":"https:\/\/dev.wahi.com\/ca\/en\/?p=3060"},"modified":"2023-06-26T15:13:12","modified_gmt":"2023-06-26T15:13:12","slug":"real-estate-investment-risk","status":"publish","type":"post","link":"https:\/\/wahi.com\/ca\/en\/learning-centre\/real-estate-101\/invest\/real-estate-investment-risk","title":{"rendered":"Real Estate Investment Risk"},"content":{"rendered":"\n[et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”55px||||false|false” global_colors_info=”{}” custom_margin__hover_enabled=”off|desktop”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” width=”95%” max_width=”100%” custom_margin=”||-24px||false|false” custom_padding=”55px||||false|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_breadcrumb _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_breadcrumb-link title=”Real Estate 101″ _builder_version=”4.18.0″ _dynamic_attributes=”link_option_url” _module_preset=”default” link_option_url=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9saW5rX3VybF9wYWdlIiwic2V0dGluZ3MiOnsicG9zdF9pZCI6IjcyMiJ9fQ==@” global_colors_info=”{}”][\/wahi_breadcrumb-link][wahi_breadcrumb-link title=”Invest” _builder_version=”4.18.0″ _dynamic_attributes=”link_option_url” _module_preset=”default” link_option_url=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9saW5rX3VybF9wYWdlIiwic2V0dGluZ3MiOnsicG9zdF9pZCI6IjI5NDcifX0=@” global_colors_info=”{}”][\/wahi_breadcrumb-link][wahi_breadcrumb-link title=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF90aXRsZSIsInNldHRpbmdzIjp7ImJlZm9yZSI6IiIsImFmdGVyIjoiIn19@” _builder_version=”4.18.0″ _dynamic_attributes=”title” _module_preset=”default” module_text_color=”#686E6E” global_colors_info=”{}”][\/wahi_breadcrumb-link][\/wahi_breadcrumb][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”12px||12px||false|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _dynamic_attributes=”content” _module_preset=”default” header_font_size=”3.5rem” header_line_height=”4.5rem” header_font_size_tablet=”42px” header_font_size_phone=”3rem” header_font_size_last_edited=”on|phone” header_line_height_tablet=”4.5rem” header_line_height_phone=”3.2rem” header_line_height_last_edited=”on|desktop” global_colors_info=”{}”]@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF90aXRsZSIsInNldHRpbmdzIjp7ImJlZm9yZSI6IjxoMT4iLCJhZnRlciI6IjwvaDE+In19@[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”4px||9px|||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_socialsharing _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][\/wahi_socialsharing][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”6px|||||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”24px” text_line_height=”1.5em” custom_margin=”||15px|||” global_colors_info=”{}”]

No investment is completely risk-free, so be sure to familiarize yourself with the risks of investing in real estate and how to minimize them.<\/span><\/p>[\/et_pb_text][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”1.13rem” text_line_height=”1.18rem” custom_margin=”||5px|||” global_colors_info=”{}”]

By Emily Southey | 10 minute read<\/p>[\/et_pb_text][et_pb_post_title title=”off” author=”off” date_format=”M j” categories=”off” comments=”off” featured_image=”off” _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_post_title][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” width_tablet=”” width_phone=”100%” width_last_edited=”on|phone” max_width_tablet=”” max_width_phone=”100%” max_width_last_edited=”on|phone” custom_padding=”21px||||false|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_image src=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9mZWF0dXJlZF9pbWFnZSIsInNldHRpbmdzIjp7fX0=@” align=”center” force_fullwidth=”on” _builder_version=”4.18.0″ _dynamic_attributes=”src” _module_preset=”default” custom_padding=”2px|||||” border_radii=”on|32px|32px|32px|32px” border_radii_tablet=”on|32px|32px|32px|32px” border_radii_phone=”on|0px|0px|0px|0px” border_radii_last_edited=”on|phone” global_colors_info=”{}”][\/et_pb_image][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”||40px|||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]

If you\u2019re interested in investing in real estate<\/a> but nervous about the risks that come with it, you\u2019re in the right place. Below, the experts at Wahi have put together a fool-proof guide to real estate investing risk that will help you understand what the most common risks are and how to avoid them.\u00a0\u00a0<\/p>\n

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What Are the Risks of Investing in Real Estate?<\/h2>\n

Let\u2019s dive right in. The following is a list of some of the main risks.\u00a0<\/p>\n

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The unpredictability of the real estate market<\/b><\/h3>\n

One of the main risks of real estate is that it is unpredictable. Therefore, when purchasing real estate, you have no guarantee that you will see a return on your investment. While the market could remain strong, raising the value of your property, there\u2019s always a chance that an economic downturn will occur, thereby lowering the value of your property. The reason the real estate market is so unpredictable is that it is dependent on so many factors, from the economy and interest rates to government policies and even unforeseen events like global pandemics. That said, generally speaking, real estate values do tend to rise over time (even if slowly).\u00a0<\/p>\n

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Choosing an undesirable location<\/b><\/h3>\n

Another risk of investing in real estate is choosing an undesirable location that makes it difficult to profit from your investment property. Location should always be a top consideration when buying real estate. Whether you\u2019re buying a residential or commercial property, if the location is bad, you will likely have trouble finding a tenant and\/or selling it for a profit down the line. Ultimately, location impacts the demand for properties and the potential for appreciation, which makes buying a property in an undesirable location another major risk of real estate investing.\u00a0<\/p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” background_color=”#edf7f3″ custom_padding=”32px||32px||true|false” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” header_2_text_align=”center” header_2_text_color=”#38505b” header_2_font_size=”2.63rem” header_2_line_height=”3.75rem” max_width=”800px” module_alignment=”center” header_2_font_size_tablet=”32px” header_2_font_size_phone=”27px” header_2_font_size_last_edited=”on|phone” header_2_line_height_tablet=”3.75rem” header_2_line_height_phone=”32px” header_2_line_height_last_edited=”on|phone” global_colors_info=”{}”]

\u201cEvery type of real estate property comes with risk. However, certain types of properties are known to be lower risk, such as long- and short-term rental properties and multi-family homes.\u201d<\/h2>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”||24px||false|false” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”||43px|||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]

Spending more than you make<\/strong><\/h3>\n

Spending more than you make on your rental property results in a negative cash flow, which is yet another risk of investing in real estate. After all, one of the main purposes of investing in real estate is to generate some extra income. Negative cash flows occur when you spend more money on the expenses associated with the property (for example, mortgage payments, taxes, and insurance) than you are earning from it (in the form of rent from tenants). Some of the common reasons behind negative cash flows include charging too little for rent, maintenance costs that are too high, high vacancy rates, or high financing costs on a mortgage or hard money loan. Though spending more than you make is certainly a risk that comes with real estate investing, it is one that can be avoided with proper planning and budgeting.<\/p>\n

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High vacancy rate<\/b><\/h3>\n

No matter what type of property you invest in, if you hope to rent it out, then you run the risk of high vacancy rates. Since renting out a property is the main way of generating income in real estate investing, high vacancies in your area can spell trouble. They are especially risky if you count on rental income to pay property expenses like taxes, insurance, and maintenance.\u00a0<\/p>\n

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Issues with tenants<\/b><\/h3>\n

Even if you avoid the risk of high vacancies and manage to find tenants, there is always a risk that the tenants will cause problems. A bad tenant can end up having serious financial consequences to your investment, not to mention the stress they can cause. Examples of common issues with tenants may include refusing to pay rent on time or not paying at all, hosting extra people or animals on the property, ignoring tenant responsibilities, and waiting too long to report maintenance issues or not reporting them at all, leading to more expensive repairs. For this reason, vetting all prospective tenants is crucial before leases are signed.\u00a0<\/p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” min_height=”35px” custom_padding=”0px||0px||true|false” global_module=”1002″ saved_tabs=”all” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” width=”100%” max_width=”100%” custom_padding=”0px||0px||true|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_divider show_divider=”off” admin_label=”Divider” _builder_version=”4.18.0″ _module_preset=”default” background_color=”#f0faf4″ height=”40px” locked=”off” global_colors_info=”{}”] [\/et_pb_divider][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”54px||48px|||” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]

Lack of liquidity<\/b><\/h3>\n

One last risk of investing in real estate is the lack of liquidity. Unlike stocks or bonds that can be cashed out in a matter of minutes, real estate is far from a liquid investment. Because of the lack of liquidity, there is always a risk that investors will end up selling below market or at a loss if they need to gain access to cash quickly.\u00a0<\/p>\n

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Mistakes to Avoid When Investing in Real Estate<\/h2>\n

While the risks of investing in real estate might seem overwhelming, there are ways to mitigate them. The first step is understanding what the most common real estate investing mistakes are and how to avoid them, which we outline below.<\/p>\n

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1. Not making a plan<\/b><\/h3>\n

A common mistake among real estate investors is jumping in without a plan. Before buying a property or even starting the property-hunting process, it\u2019s important to make a plan. Consider the basics of real estate investing, such as what type of property you want to invest in and how you plan to generate income from it. Beyond that, you will need to consider your budget, ideal location, and the role you want to have in managing the property. If financing is needed, you should also research your options and get pre-approved for a mortgage.\u00a0<\/p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” background_color=”#f0faf4″ min_height=”334.8px” custom_padding=”27px||0px|||” global_module=”849″ saved_tabs=”all” locked=”off” global_colors_info=”{}”][et_pb_row custom_padding_last_edited=”on|phone” _builder_version=”4.18.0″ _module_preset=”default” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|phone” custom_padding=”||61px||false|false” custom_padding_tablet=”” custom_padding_phone=”” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” header_2_text_align=”center” header_2_text_color=”#38505b” header_2_font_size=”2.63rem” header_2_line_height=”3.2rem” custom_margin=”||25px|||” custom_margin_tablet=”” custom_margin_phone=”|5px||5px|false|true” custom_margin_last_edited=”on|phone” custom_padding=”||0px||false|false” header_2_font_size_tablet=”2.63rem” header_2_font_size_phone=”2rem” header_2_font_size_last_edited=”on|phone” header_2_line_height_tablet=”3.75rem” header_2_line_height_phone=”2.5rem” header_2_line_height_last_edited=”on|desktop” locked=”off” global_colors_info=”{}”]

We put the real<\/em> back in real estate.<\/span><\/h2>[\/et_pb_text][et_pb_divider show_divider=”off” _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”||0px|||” locked=”off” global_colors_info=”{}”][\/et_pb_divider][et_pb_text admin_label=”Text” _builder_version=”4.18.0″ _module_preset=”default” text_text_color=”#e8db3a” text_font_size=”20px” text_orientation=”center” min_height=”35.8px” custom_margin=”-24px||32px||false|false” custom_padding=”||||false|false” global_colors_info=”{}”]

Join Wahi today and find out how easy it is to get real estate in the GTA<\/a>.<\/span><\/p>[\/et_pb_text][et_pb_divider show_divider=”off” disabled_on=”off|off|off” admin_label=”Divider” _builder_version=”4.18.0″ _module_preset=”default” height=”5px” custom_padding=”||0px|||” hover_enabled=”0″ locked=”off” global_colors_info=”{}” height_last_edited=”on|phone” sticky_enabled=”0″ height_phone=”1px” height_tablet=”5px”] [\/et_pb_divider][wahi_wahiButton url=”\/ca\/en\/real-estate\/sign-up” button_font_color=”#000000″ button_color=”#EB7161″ circle_color=”#000000″ border_color=”RGBA(255,255,255,0)” focus_color=”#000000″ is_white_hover_text=”on” _builder_version=”4.18.0″ _module_preset=”default” locked=”off” global_colors_info=”{}”]

GET STARTED<\/p>[\/wahi_wahiButton][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” background_color=”#ffffff” custom_padding=”48px||3px||false|false” global_colors_info=”{}”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]

2. Barely doing any research<\/b><\/h3>\n

Doing your research is as important as making a plan. Before buying anything new, including real estate, ample research is required. Take the time to research qualified REALTORS\u00ae near you, the best location for a rental property (which includes researching factors like vacancy rates, crime rates, average housing prices, amenities, and more), and the associated expenses, such as property taxes, permits, and insurance costs.\u00a0<\/p>\n

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3. Failing to research the local market<\/b><\/h3>\n

Real estate markets are local, and they change rapidly. Another mistake investors make is forgetting this and assuming that one city\u2019s housing market is the same as another\u2019s. The reality is that the housing market within a city varies, with different neighbourhoods having their own micro housing markets. Therefore, being specific with your market research is key.\u00a0<\/p>\n

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4. Not obtaining the necessary financing<\/b><\/h3>\n

Obtaining financing for an investment property can be difficult, but in many cases, it\u2019s necessary if you want to be successful. While you might be able to get some financing, you should never purchase a property unless you have enough financing to do so. Otherwise, you could be stuck with a long-term mortgage you can\u2019t pay off, which could significantly eat into your profits.<\/p>\n

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5. Overpaying for the property<\/b><\/h3>\n

The last mistake investors make in real estate is overpaying for a property. This usually goes back to mistake #2, not doing enough research. Overbidding on a property can have major short- and long-term consequences. Working with a REALTOR\u00ae can help ensure you do not overpay for a property. They will do a comparative market analysis that determines the prices of comparable homes in the area, helping you identify whether a home is fairly priced or not.<\/p>\n

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Tips on How to Reduce the Risk Management in Real Estate Investment<\/h2>\n

Now that you understand the most common risks of real estate investing, as well as the top mistakes to avoid, we are going to provide some tips on how to reduce risk management in real estate.\u00a0<\/p>\n

\u00a0–<\/span><\/p>\n