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Real Estate Investing Risks in 2024

Real estate investing can be risky. Find out the biggest risks you'll face as an investor.
Real estate investing can be risky. Find out the biggest risks you’ll face as an investor.

As with any investment, real estate investing can be a risky venture. While the potential for outsized returns is possible, it’s important to know and understand the risks that come with real estate investing before getting started.

This article will discuss the biggest real estate investing risks for investors so you can decide whether or not now is a good time to get started in this dynamic industry.

Risk #1 – Loss of Capital

It's important to understand the financial risks associated with real estate investing in today's market.

We’ve all heard the saying “it takes money to make money,” and this is especially true in real estate investing. It’s possible to use creative financing strategies to limit the amount of personal capital invested in real estate assets, but most investors will have some skin in the game.

Investors can suffer losses for a variety of reasons when investing in real estate. For example, real estate markets are cyclical in nature and are subject to dramatic fluctuations at times. Economic factors like interest rates and inflation can affect investor return on investment (ROI), while changes in government regulations can also tip the scales.

Additionally, changes in local markets can increase real estate investing risks as well. Even in favorable economic conditions, local markets are often subject to events like natural disasters or environmental issues that investors cannot control.

Risk #2 – Liquidity Risk

Tying up your capital in a property may not always be a smart choice.
Tying up your capital in a property may not always be a smart choice.

The second risk that investors face involves liquidity, or the ability to quickly convert your investment into cash. Unlike the stock market, real estate investors tie their funds up in a physical property and must sell it to realize their gains (or losses). 

Depending on the state of the real estate market, it may take weeks or even months to sell a property, making it a very risky investment for those who may have unexpected emergencies where quick cash is needed.

Risk #3 – Property Management Issues

Property management is a crucial aspect of a successful real estate investing business.

Rental properties, commercial real estate, and industrial facilities require property management to keep the investments operating and to provide consistent rental income. However, not all property management companies are created equal.

Investors should conduct thorough due diligence on the operational requirements for their property and have a comprehensive plan for property management before purchasing real estate investments. 

It’s also important to consider the ins and outs of tenant management and dealing with problem tenants. Investors run the risk of evicting tenants and missing out on valuable rental income if they fail to properly screen and qualify potential tenants.

Risk #4 – Market Saturation

Too much competition can decrease your chances of success in real estate.
High competition can decrease your chances of success in real estate.

Some markets have an oversupply of properties and higher competition than others. This is one of the most overlooked real estate investing risks that may derail your long-term investing goals. 

Investors should research the best markets in their local area to decide whether or not investing is a smart choice in that location. However, remote real estate investing is becoming more popular for investors who want to purchase and manage properties without the need to be on-site for day-to-day operations.

The Bottom Line

Investing in real estate comes with a considerable amount of risks and challenges. Despite this, real estate investing continues to be one of the best ways to build long-term wealth and passive income.

We recommend taking these risks into consideration before deciding whether or not real estate investing is right for you.

Related: How to Make Money in Commercial Real Estate

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