Introduction
Top 9 Risks of Investing in Real Estate 2023 will guide you to make appropriate strategies & effective solutions. In terms of high returns on Investment (ROI), real estate is considered the most profitable sector in Pakistan. Therefore, the rates of residential properties in Pakistan have increased from PKR 5,218 per square foot to PKR 8,316 per square foot, making a rise of 59.37% in the last five years. As a smart investor, you must be aware that risk is a part of the business, but implementing appropriate solutions & strategies could neglect the involved losses.
Tierra Associates has 3 years of experience in the real estate industry. During these years, they have taken so many productive risks. As a result, the firm is now Pakistan’s top real estate company. The company’s owner, Mr. Gulfam advises its clients not to worry about the market conditions. He stresses upon trusting the company and avail the highly profitable opportunity.
So far, the company is dealing with many profitable housing projects in different cities in Pakistan, such as:
Top City
Capital Valley
Bahria Town Peshawar
NOVA City
Park View City
Capital Smart City
Lahore Smart City
Bahria Town Karachi
AIWA City
Silver City
Kingdom Valley
New City Paradise
EIGHTEEN
Top 9 Risks of Investing in Real Estate
Risk is always associated with the business. So, be aware of it as soon as possible so that you do not face any kind of issue now or in the future. The blog has covered the top 9 risks of investing in real estate.
Below are the 9 major risks in real estate investment you must consider:
Risk 1: Real Estate Market
The real estate market is always unpredictable due to various factors, such as economic forces of demand and supply, changes in government policies, and unexpected national and international events. As smart investors, make sure to stay updated every second.
Risk 2: Property Location
For every investor, property location must be their priority because well-placed properties can easily provide you with huge profits. So, as a smart investor, look after the perfect location both for living and business purposes.
When you are about to purchase a property, keep in mind the following things:
- Is the property placed in an urban or suburban area?
- Are schools, grocery stores, and hospitals nearby you?
- Is the location safe?
- Is the location profitable?
Risk 3: Rental Risk
Real estate investment can provide you with solid profits. Nevertheless, as you are well aware, the risk is always associated with that source of income because the landlord is vulnerable to tenant credit risk, which could easily lead to cash flow gaps due to unplanned downtime.
Risk 4: Negative Cash Flow
Cash flow means the money left to you after the real estate business’s expenses, taxes, insurance, and mortgage payments. Moreover, when the money coming to you is less than the money going out, it simply means that you have a negative cash flow and are losing money.
There are various reasons behind negative cash flows, such as:
- Underestimating the maintenance
- Renting the property at low prices
- The property remains empty for a long time
- Taking loans for construction purposes with high-interest rate
Risk 5: Lack of Liquidity
It is very easy for investors to sell out the bond or stocks they own at any time they want to get cash. However, when it comes to real estate, then it is not the same. Real estate investments lack liquidity as compared to stock or bonds, etc. If you are in a situation where you need cash urgently, then you cannot make money out of your property.
Moreover, real estate investments are perfect for long-term purposes. If your investment is not for the long term and you need cash, you need to sell out your property at low rates, which can give you a loss.
Risk 6: Structural Risk
Structural risk is when you underestimate the costs of repairs and maintenance. So, if you purchase plots or homes, make sure to check out the property carefully to overcome the structural risk easily.
Several risks are mentioned here:
- Natural disasters
- Theft or damage
- Poor quality material used
- Poorly crafted written contracts
- Poorly designed floor/master plans
- Safety hazard potential to the workers
- Unskilled labour or shortage of labour
Risk 7: Property Taxes
Real estate investors have different types of taxes, such as Capital gains, income, and property taxes. Due to these types of taxes, there is a high chance that one of them can change or may go high at any time of investment.
There is also a high chance that the property tax can change throughout the investment life, which can result negatively. Therefore, make sure to update yourself about the tax legislation and plan accordingly.
Risk 8: Finding Suitable Tenants
If you are looking for a tenant to rent your property, make sure to have a good one who pays you the rent on time.
If you have a tenant who pays late or not paying the rent at all, or if they damage the property or delay informing you about the maintenance issues, then that kind of tenant is a big risk in your profitable investment. So, find a suitable tenant if you do not want to have losses in your investment.
Risk 9: Legislative Risk
Legislative risk is also an important factor to consider carefully. Modifications or changes in the policies or regulations by the government can seriously affect your real estate investment.
Legal regulations include registration procedures, rent control laws, taxes, tenant laws, etc. All these factors/risks require strong attention if you do not want to face any loss.
Conclusion
This blog has covered the top risks of investing in real estate. Like every type of business, the real estate sector also has risks. As a wise investor, do your complete research before investing in any property. However, you cannot ignore that the real estate market is one of Pakistan’s growing and profitable industries.
