As in many other businesess, Real Estate can come with quite the trouble if the investor is not careful! From money loss to gigantic debt, from physical injuries to completely destroyed credit score, there are many risks to consider when going into Real Estate as a business model.
First things first, do enough research to conclude how the market is going to behave in 5 years time, not only in Real Estate, but every single one that is somehow surrounding it, like the job market, the companies around the neighborhood, but specially the area you work in! If you’re going to get a mortgage you have to be certain on your payment capacity.
What are the biggest risks you can encounter while doing Real Estate Investing?
– Money Loss:
Let’s just say sometimes you loose a bet to a friend now you’ve wasted $10, now magnify it to a thousand percent! You pay around a $120k on a property to flip it and right after you get it the house catches on fire, or the structure gives out, or the roof is now on the floor? Now what you thought to be around a $30k tops to fix the property and flip it, has turned into a $100k of money you didn’t have planned to invest in it, you can either sell it as is, completely destroyed and get less than what you originally invested in, or still fix it, but the investment doesn’t give you the revenue you once thought you could’ve had… It’s a tough situation either way!
Our solution and recommendation for this tough money loss scenario is to have insurance on the property, so if a situation like that were to happen you’d still get some aid for it and fulfill your investing with some window for a revenue!
As on the last one, do your research and only take the leap on a mortgage, or a Hard Money loan, because thing is, of course you’ll get the money right away to pay for your home, but will you be able to pay it back? what about the interest rate? Are you sure you’ll keep your job for a long period of time? There are so many questions regarding to that, and only you the answers will let you know if there’s even a small chance of it being a good move!
Do not take on a loan if you’re not certain about your job state, or the market around you, those thinks could potentially destroy you when you already have to pay a significant amount of money month to month on an extended period of time! And sometimes you can’t really swim out of this debt-pool! In this case you have a few options to solve the situation through Real Estate! One of them being that you can sell the property as is, and purchase a smaller one for less money and with the rest of the money pay the remaining mortgage, or sell it as is and rent a place for a while, leaving the remain to pay the mortgage!
– Broken Credit-Score:
The most sacred part of your finances is your credit score! Work on it continuously while you save as much as you can before jumping into one of any type of loans, because while yes, you’d have some money through a loan, and maybe you’ve acquire the property itself, you’ve also put yourself in a position where everything can change and your credit score be destroyed!
The worst case scenario being the property doesn’t work out, or as in the first case, the fix costs more than you thought, and suffer from a massive money loss while you’re in deep in debt and completely broke still trying to continue living and working, leaving you to often using your credit cards, which will only bring in more bills to be paid for, and on top of that a broken credit score will only bring you trouble with the banks and future investments! So take good care of it and save as much money as possible before jumping in!
Our biggest suggestion before jumping into Real Estate is to consult with an expert before, to know your options and how to do it, there’s a ton of research to be done previous to investing so it’s necessary to have someone by your side who knows what are red flags and what is a good to go! You have to also have a conversation with your accountant to see what type of loans would work for you and your family, or you and your partners!
Remember to follow us throughout social media for more tips, quotes, and general knowledge on Real Estate, we’re everywhere as IRG Corporation! You can also check the Deals section of this page to see the best properties to invest in South Florida!