People usually say, “As safe as houses” when referring to an extremely safe investment. Used mainly in the real estate industry, it is used by market players to boast about the safety of real estate investments. Whereas real estate investments are traditionally safe, there are some risks and loopholes that make it look like a risky venture. They are:
1). Bad Tenants: People usually invest in real estate to make money through rent payments. People always assume that when they have a house for rent, the tenants will always pay their house rent. Some good tenants pay their bills on time. Good tenants never damage your property and do not create any legal problems. Many experienced real estate owners say bad tenants are the number risk for investors. While there is a slim chance of getting bad tenants, there is a possibility that they will also make you end up in court. They will make you fork out your hard-earned money in paying for legal costs. This is why it is good to conduct a background check on any prospective tenant before you give out your property for rent.
2) The risk of liquidity: When compared to most other investments, real estate properties are very difficult to liquidate. It involves lots of money and a lo0t of commitment from your finances. When trying to sell off your property, it can be difficult to find a buyer looking to purchase the property for the asking price. Whereas gold, bond, and stocks have high liquidity rates and can be sold off within minutes, the same cannot be said for real estate investments.
3). Risks from counterparties: In the real estate industry, a lot of people usually purchase buildings as they are being constructed. They usually pay for unfinished units if they are certain that they are getting their money back in a short time. These unfinished units are not expensive. In addition, the developer usually makes available favourable financing schemes for people to buy. However, purchasing units that are under construction come with severe risks. This means the investors are at the mercy of the developers. Their money can get stuck should the developer be unable to finish the property on time. The buyers would lose some part of their property investment since they will keep on paying rent.
4). Information risks: The property market is never a transparent one when looking at markets that offer clear trends and analytics. Markets like bullion, bonds, and stocks usually have accurate and updated information about products in real-time. You can easily utilise the data to access trends among assets and make well-informed decisions.
But in the case of real estate investments, local brokers act as the only source of reliable information. The brokers have selfish interests and are not interested in providing actionable and reliable information to the investors. This means that they frequently guess and falsify the data about building capital and rental values. To avoid this, buyers must have numerous information sources to help them verify the usefulness of any data received by them. The Malta real estate industry has tried severally to prevent this trend by providing various online portals and direct communication systems between the buyer and the seller.