The risk of real estate investment
I have found that a majority of readers were advancing risk as a major obstacle before investing in real estate. The risk in real estate is a broad topic that makes the big difference between those who deny: "in real estate, there's no risk: that always goes ' and the risquophobes:"real estate, it's risky because you do one left or double if your tenant degrades and pay never. "
Today, this article is designed to analyze the risk in real estate investment. Here are examples of risks and solutions to control them.
The market risk
This risk is often refused on the real estate market. This comes from the dizzying rise in recent years, for example in Frigit curve. But since the dawn of time, there was still a decrease after the rise. This risk is not negligible and variations in the real estate market have nothing to envy to the stock markets.
There are 2 ways to manage market risk:
- No sale/no valuation: If transactions and the amounts of property sales may decrease see drop. Rental needs, they are more stable, because it is always necessary to lodge, on this point it is useful d´analyser demographics. In short, in the event of a market decline, better keep the property in praising and postpone the sale for better days than to take a write-down.
- Negotiate the purchase: you should never invest by buying a property at the market price. It is necessary to negotiate the real estate to buy it below the market price. Thus, if the property is purchased 10% under the level of the market, a decrease of 10% will be inconsequential on heritage. In addition, a good deal is already at l´achat.
The risk d´illiquidite.
Major l´inconvenient of l´immobilier is the fact that it represents a very important part of the heritage and is very difficult to resell. It is difficult not to put all eggs in one basket, however there are solutions like the fact d´acheter a share in a SCI or to the estate crowdfunding.
Crowdimo site for the french
Invest in stone in Estonia.
The risk of rental vacancy
Rental holidays come directly initiate the profitability of the property. One month's rent, this is a significant decrease in revenues. It is even more amplified that there are fixed costs (property tax, charges, wear and tear) which are payable, regardless of income.
For example, consider a well with a monthly rent of €600, € 1000/year charge, €800 / year in property tax and €200 / year of insurance. The annual gross income with 12 months of rent will be €7200 with 11 months of €6600, a decrease of 8.3%; normal hear you say me, that is 1/12th. But net income, past 5200-€ 4600 a decrease of 11.5%!
Difficult to control this type of risk. Indeed, c´est typically a d´offre game and application in an imperfect market. However, the tenant has 3 months of notice. The owner should be very active in the advertising during this period in order to succeed in re-letting the property with the minimum of vacancy in-between.
Rental holidays can also be a way to do the work and thus increase the quality of housing and thus the level of rent that will follow.
The conflict with the tenant
Probably l´un of the worst risks. Conflict with a tenant can be a great source of as much financial as lost time problems. It is quite possible that a tenant invokes a workmanship (leak, crack or any other pretext) for not paying his rent. This can go very far: findings of bailiffs, courts. The cost in time and money at the end of the conflict can be terrible (especially if the conclusion gives harm to the owner who will lose months of rent and will also pay legal costs).
- The first remedy for the investor is to be honest and to be attentive to its tenants. It sounds simple, but it is a way to avoid a lot of problems.
- Second: be reactive. Found leaks must be repaired more quickly. If there are a few costs, not disaster.
- Finally: be proactive. It is possible that the tenant complains on a point where the owner believes that he has no problem or that the tenant is responsible. The owner must therefore be the 1st to act systematically. For example, by making note different by a bailiff. Indeed if the opposing party who puts the usher, there are strong bet that the finding will be dependent! It is better to pay an admission and have reason to be in the wrong.
The risk of unpaid
It is the risk of the most recognized real estate investment by the general public: the deadbeat. Knowing that it is long and difficult to evict a bad payer, losses can become nightmarish for the owner.
- Be very selective about the choice of the tenant. This is not always possible.
- Insurance on unpaid bills. They are usually around 3% of rents, but are very useful in the case of unpaid.
- Have many goods to mutualise the risk.
The risk of degradation of the property
Somewhat like the risk of unpaid, the risk of falling on a little careful tenant that degrades the good, or even an incident that damaged (fire, flood) good is no longer negligible. Solutions are almost the same as in the point before:
- Yet once, be very selective about the choice of the tenant. This is not always possible.
- Properly ensure its good.
- But also well write his lease in order to claim compensation of the disgruntled tenant.
Risk of investment in real estate, and not the least: the defects. Workmanship unidentified buying can become a money pit. The cost of work generated may become important.
To cover this risk, the owner must learn to develop a certain expertise visits before buying.
Real estate c´est before any property that deteriorates, l´usure is certain so it is necessary regularly to deliver l´argent. Only the plot loses value.
Balance sheet risks in l´investissement real estate
As in all investments, the risk is an element in real estate and must not neglect. However, as we saw in the article, for each risk identified, the investor can learn how to master it and minimize it so.
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