So, you’re looking to become a real estate investor? While real estate investing can open the door to financial freedom, passive income, and building a thriving business, there are several risks that investors face heading into 2024.
This article will discuss the biggest risks for investors this year so you can decide if real estate investing is right for you.
Risk #1 – Market Fluctuations
Market fluctuations are inevitable in the real estate market, which means it’s important to understand the potential implications before getting started in real estate.
Historically, real estate values steadily increase over time. However, short-term market fluctuations can impact the value of rental properties with rising or declining appreciation.
Additionally, market fluctuations can increase monthly payments and make it challenging for investors to grow their business. For example, a $500,000 investment property at 4% interest over 30 years requires a monthly payment of $2,200. But the same property financed at 7% interest comes with a monthly payment of $2,950.
Risk #2 – Loss of Investment
The next risk for real estate investors is, of course, losing their investment. This can happen for a variety of reasons that are sometimes out of the investors control, as is the case of market fluctuations.
However, other times new investors fail to prepare for all the challenges of real estate investing and how to overcome them. Budgeting, reporting, building a team, and financial management are all issues that can cause investors to lose their capital when investing in real estate.
Risk #3 – Property Management Challenges
Property management is another key component of real estate investing. Before acquiring an investment, it’s important to have a clearly defined strategy for handling the maintenance and management of the property to keep it up and running.
Tenant relations is where many new investors get tripped up. Professional property managers often handle the tenant screening process, but new investors might need to assume these duties at the beginning. Make sure to vet potential tenants for their creditworthiness, criminal background, and past references to ensure they will be a high-quality tenant who pays rent on time.
Risk #4 – Vacancies
The final risk of real estate investing is the possibility of vacancies in rental properties. Thriving investment businesses require steady rental income to cover operating costs, and high vacancy rates can significantly decrease rental income.
New real estate investors must plan for vacancies in their monthly budgets and work to acquire properties at a reasonable price to maintain profitability.
The Bottom Line
All investments involve the risk of loss, and real estate investing is no exception. However, there are plenty of ways that new investors can minimize their risk through effective budgeting, financing, and property management.
Are you looking for a real estate agent in Massapequa? The Kim Holland Homes team is the #1 real estate team on Long Island. Contact us or call Kim today at 516-236-6303 to start the process of finding your dream home.