Real Estate Investing Risks
Complex tax structure is not only a drawback in real estate investments, it comes with high risk as well. Real estate as an asset class in a high risk-high return investment avenue. Let’s discuss a few risk involved in real estate investing:
A. Poor Location: Choosing the right location is vital when it comes to investing in real estate. The location also determines supply & demand which becomes extremely crucial at the time of selling the property. Don't be tempted to buy in a specific area where prices are lower. It can turn out to be a terrible choice. There’s usually a reason behind unreasonably affordable prices. Investors must carry out a proper recce of the area before investing in a property.
B. Liquidity: One of the biggest disadvantages of real estate is its illiquid nature. You may have to make a distress sale in case of urgent requirements of funds. It is best to invest in Real Estate only when you know that you will not be needing the money for a long time.
C. Legal Tussles: Despite the efforts of the central government to bring transparency and limit strongmen influence, bribery and corruption continue to pose a serious risk to the Indian real estate market. In particular, theft of physical assets, bribery, fraudulent builders, delay in delivery of property, etc pose major risks.
D. Bad Tenants: Finding quality tenants is required to make real estate investing successful. This includes verifying their employment, credit score, and criminal background or use of a third-party placement service provider, but always make sure to do your due diligence as well.
E. Market Risk: The Real estate market is flourishing in many areas of the country. However, there is no certainty that this trend will continue. Many people who believed that real estate values always appreciated found themselves owning properties that were upside down. For instance, property owners in Lavasa & Aamby Valley City in Maharashtra are going through tough times as their land parcels find no takers.
F. Over Leverage: Leverage works as a double-edged sword.