Knowledge is the Map to Greater Wealth,
Real Estate is the Easiest Path.
Leveraging through Financing will take you on that Path the Quickest!
Investing In Real Estate
Risks Associated with Investing in Real Estate
Before investing in any given property it is always wisest to prepare a complete strategy, planning everything from the purchasing, improving, carrying cost all the way to when and how you will sell. By looking at all the factors before investing you are able to lay out strategies for any little surprises which might arise so that your ultimate goal of increasing wealth is preserved.
The following is a list of the type of risks which might arise and some ideas for managing them
- Property prices falling. This particular risk is foremost on the mind when putting your money into real estate. It is also the most analyzed in today's economy. In the media you have all kinds of “Experts” giving opinions from a looming Bust to continued record increases. Great Condos, Inc. is constantly watching our market to not only help advise our clients but to protect our own investments. One of the most important things to look at when seeing all the Bust theories is look at who it is coming from. Most all the dire predictions are coming from those whose expertise is either in other types of investing (stocks, bonds. securities) or in the general economy. Almost all those who are predominately “Real Estate” analysts say that an overall bust is very unlikely, happening only in areas with fragile local economies. Other areas with strong economies and with an overall influx of population and desire will continue to increase in value proportionately to those numbers. South Florida has a very strong economy with low unemployment, large numbers of people moving into the area from all over the world to enjoy our climate and a very limited amount of space. These basic factors of Supply and Demand can only create increased values where the unknown is the actual amount of increase. Current indicators point to record increases. However even the best conditions can be changed by unforeseen circumstances. It is a good idea to always watch for any major changes and have a preset high or low failsafe in your strategy.
- Natural Disaster-Hurricanes. Especially after Hurricane Katrina is this a risk which is front and center right now. All investors should make sure their properties are as prepared as possible for a direct hit hurricane including things such as shutters or hurricane rated windows and doors, landscaping to minimize possibility of damage to structure, and plans to batten down all the hatches. As far as loss due to hurricanes, most investors leverage property and are required by lenders to have insurance to cover a complete loss. Regardless of whether you are required or not, complete coverage should be maintained. You should always make sure if you are in a flood zone. Other than complete loss there is the possibility of having to alter timetables of when to sell as a hurricane targets your area, however this is generally in weeks to a couple of months at most. Also be prepared for the possibility of a period of vacancy if there is just enough damage to prevent occupancy.
- Vacancy. If your strategy involves renting to cover or help with the carrying cost then you have to deal with the possibility of the property being vacant. You can minimize this by setting the rental price competitively. After checking the current rents of other similar properties you can set your price to be more desirable than other units which can go a long way to keeping tenants in place. If your price is as much as or above other units then you run the risk of going several months without the income. It doesn't take but one or two months to eat away the added benefit of a higher rent. The other method of making your property more desirable is to make improvements which add to the initial appeal. You don't have to spend a lot of extra money to do this.
- Repair costs. You need to be prepared for the possibility of some system needing replacement. I.e. A/c, Range, Refrigerator, Water heater, etc. The larger things such as roof replacement or major structural repairs should be inspected during the buying process and any needed work should be factored into your initial strategy.
- Personal Circumstance changing. It is always a good idea to take
a very close look at your personal circumstances and be prepared for
sudden changes. This could be anything from loss of employment to
health problems. You should have an idea of what to do if these were to
come about. One factor in real estate is that It is not a liquid
investment. It takes time to get your investment and any appreciation
out. However there is a possibility to get an equity loan to cover some
expenses to tide you over but if your circumstances dictate getting all
the way out it can take several months. This can be kept to a minimum
by pricing low enough to entice a quick sale.
- Getting the Best Deal. Here we can help. Great Condos, Inc. is constantly monitoring the available properties and prices to find the best deals available.
- Having a hard time selling. With the current market conditions this is not a problem unless you try to get too much too quickly. Great Condos, Inc. feels that you should decide when you wish to sell the property, price it to the market at that time and sell it as quickly as possible. Sometimes it is hard to realize that it is not a good idea to put your property on the market at an inflated price just to see if someone will buy it. Research shows that a property which starts on the market too high will loose exposure in the long run. A majority of buyers use Agents to find their properties and when an agent dismisses a property once because of its price, they will generally not even look at that property for other buyers even if the market values were to rise to the point of being in line with your price. Many times when a property starts on the market too high it ends up selling for less and takes much longer to sell; not to mention the extra hassle of showing the property over and over.
We hope this has helped you start to prepare your strategy to be the most effective.
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