Zack Childress tips the obstacles that an investor faces while making a real estate investment.
- Population: The baby boomers require retirement homes or multi-generational housing, as a result the need for housing units increased. Instead of retail, more health care centers were necessary.
- Students often take home loans to stay in an apartment; they shoulder the responsibility of paying debts on time. Their parents are in trouble when they fail to miss out on mortgage payment.
- Public or crowd-funding have increased off late to improve infrastructure and quality of life. They have replaced the federal funding.
- Demand for office setup: The commercial as well as IT sector is growing drastically and need for space has also increased. Due to this, the work from home policy started as youngsters preferred to work in their comfort zone.
- Similarly e-commerce has reduced the demand for retail market space. The consumers have switched over to online shopping as it is easy to pick the products of their choice, wide range of collections, brands and chosen based on their affordability.
- Liquidity: The number of lenders is less than number loans to be refinanced. This has made the number of borrowers less and eventually capital gain is becoming low.
- Equity trap: unable to sell a property at your desired price. In other words, your cash is in use in another property.To avoid getting trapped, invest in properties that have positive cash flow.
- The energy efficient home, conservation on energy, light, water theme has become stronger in order to achieve sustainability in commercial real estate.
- Commercial real estate prices on the other hand started to see a rise in the value.
- When your properties are not diversified in geography, the overall effect is magnificent. That is, if the properties are wide-spread and when property value declines, the effect is negligible else disastrous.
To know more about risk management, investors can have a look at REI quick cash system.
How to mitigate real estate investment risk?
- Improve the prediction: when you are sure that risk is about to happen, then make a strong prediction
- Operating expenses should be assumed firmly.
- Diversification in terms of stock, risk profile, holding period
- Insurance contract: The investor can spend on insurance premium so that if a major loss occurs, the insurance will cover up.
- Triple net (NNN), two-party contract are few lease structures that can be taken up to avoid risk
- Fixed debt has higher ROI than Floating debt.
- One of the frequently used Hedging techniques is allocating funds for future. The reserved funds are used to cover up any unexpected expenses.
- Tenants may damage your property; screening will help you to choose the best tenant.
- Use cash-on-cash returns and IRR (internal rates of return) which are similar to cap rate.
- Be clear with the legislature, follow the law and order.
- Stay away from scam. The risks are unavoidable and necessary measures are to be taken at the right time.