Real Estate Investment Risks & How To Mitigate It: With reference to the latest article in the Real Estate Investor Magazine by REI Editorial | Feb 28, 2022
THE BIGGEST RISK IS TO TAKE NO RISK AT ALL
~ Casey Neistat
That statement is undoubtedly true. Poor stewardship is burying the assets you are entrusted with in the ground. On the other hand, taking uncalculated risks because of greed and high promises of return is also bad stewardship.
It is amazing to see the pendulum swings with real estate investors I have experienced over the last 30 to 35 years. When they initially want to invest are very careful and sometimes even fearful, which is understandable with all the scams that are out there, the easy way people can make themselves look legitimate is through social media, the internet, and global access to investment opportunities. Then there is the proper manner to enter into real estate investments and avoid unnecessary risks. The way to mitigate these risks are as follows:
Below is an excerpt from The Risk of Investing in Property | REI Invest
The risk (or absence thereof) of investing in property.
I truly believe investing in property is one of the safest investments you can make. And I’ll tell you why:
- Property is tangible – It is something you can feel, touch and see.
- It is a basic human need – Everyone needs a roof over their head, which means an entry-level property will always be in demand.
- The South African population and the population’s wealth is also growing, and from a supply side, land is limited, and they are not making any more of it. From a fundamental economic perspective, this means property prices will continue to increase.
The risk associated with property investment is another reason to invest. The basic measurement for risk in the investment world is standard deviation. It measures how much your return on investment deviates from the average return on investment.
Now, consider all the properties you or your relatives and friends have ever owned. Have you ever known one to plummet in value? It is a rare occasion as the standard deviation in property is extremely low because returns are very constant. Property prices do not deviate drastically from one year to another, and neither does rental income.
READ MORE: Buyer Beware: Mistakes to avoid when buying a house
Tip: Even though property is a low-risk investment, it is important to have a reserve fund, especially when you finance and refinance properties. You need to have a certain percentage of the property value in cash in case something goes wrong.
For example: You can start with 5% and then move towards 10% of the property value. In other words, if you have a R900k property, you want R45k in your access bond and move towards having R90k. But you do not have to save up for this. You can refinance your property and keep this amount separate in your bond (access / flexi ) after you’ve had the property for a year.
Remember, the best time to start investing in property is now, and you can book now for our property investment seminar. Take the risk or lose the chance!
