How to Mitigate the Risks of Real Estate Investment


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When it comes to investing in real estate, there’s always some level of risk that must be taken up by the investor. However, top real estate developers and real estate investing companies usually have ways to mitigate these risks before or during the purchase of the property. Here are several risks facing investors and how to minimize the damage they could cause.

  • Fraudulent sale: To protect from making a fraudulent sale, real estate investing companies often verify ownership of a property before they purchase it and may also choose to purchase title insurance.
  • Adverse possession: To prevent issues arising from adverse possession, commercial real estate investment firms may choose to obtain a boundary survey from a licensed surveyor before they put money down.
  • Environmental contamination: A property that poses some kind of hazard to the environment can be expensive to repair. Many real estate investing companies will get an environmental survey done of the building and surrounding area to check for contaminants like asbestos and lead paint.
  • Poor building condition: Performing a full pre-purchase inspection and regular after-purchase maintenance is a great way to avoid buying a building that will just fall apart.
  • Overpayment: When an investor is new to real estate, it’s not uncommon to pay more than a property is worth. To avoid this, obtain property appraisals from third parties and perform a discounted cash flow analysis.
  • Running out of cash: Avoid running out of cash by keeping at least enough cash or liquid reserves around to cover the cost of running your property and paying your debt for a short period of time.
  • Economic downturn: After the housing crisis, the economy is one of the main concerns on people’s minds. Avoid getting caught in an economic downturn by purchasing unique properties in great locations and taking tenants with long-term leases.
  • Tenant issues: Tenants can cause their fair share of problems, and property destruction is high on the list. Screen tenants carefully to avoid having problems with them, and hire experienced property managers.
  • Storm, fire and flood damage: Purchase the proper insurance policies to protect a property form natural disasters.

Talk to a financial adviser or investment expert for more tips on how to invest safely.

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