Investing in real estate is not always rainbows, prosperity and happiness. Each business sector in the world has a negative side to it. Most people will talk about the good and exciting sides of real estate investments to advertise it and make it more appealing to neutrals and potential investors. The reality is, investing in real estate has risks and a hidden ugly side that you probably won’t hear about or experience until you are there. The best possible way to prepare you entirely for all possibilities in real estate is to discuss all of them at length to be prepared, whether it is the good or ugly side of real estate.
The idea of discussing the ugly side of real estate is not to demotivate you as a potential investor; on the contrary, it is the best possible way to prepare you for the obstacles that are ahead. If you are already familiar with the risks and negatives already before experiencing them; odds are that you will be able to fight through them accordingly.
We will discuss in length some of the major negatives and challenges that face investors in the real estate market today. Dealing with them will vary on personality, experience and financial power certainly. However, I will discuss briefly ways to deal with these challenges.
5 Negatives of Investing in Real Estate
Vacancies in Real Estate
- Problem: Vacancies are a problem but are being minimized greatly in real estate. Many in the business try to underestimate it and not give it too much attention but the truth is, the issue is real and it is big. There is so much competition in the market nowadays. The chances of not finding tenants are higher than before because you need to compete in terms of quality, price and location with other investors.
- Solution: To solve this problem, you should understand that vacancies are part of the real estate experience. Panicking and lowering your rental price below average means you will lose overall because it is not within your calculations. To ensure minimal vacancies, be organized, hire realtors and always try to be unique when facing other investment owners.
Related: 7 Tips to Avoid a High Rental Vacancy Rate
Beware of Maintenance Costs
- Problem: The thing about maintenance costs is that you can never be prepared for it. Investing in real estate comes with maintenance risks, everyone agrees on that. Investing in a property which is old or easily fragile means you will need to pay more in maintenance and that can be the difference between profiting and losing your investment.
- Solution: Avoiding this problem only requires you to pay attention and make proper overall inspections for the investment property you intend to purchase. After that, it is important to insure your property from tenant damages either by a legal agreement or security deposit which guarantees to hold them accountable for any damages them do.
Related: 11 Costs First Time Real Estate Investors Should Consider
Overpaying for a Property
- Problem: When you are investing in real estate, you always look for the cheapest price available in the criteria of property you need. The price is dependent on market prices, location, appreciation and renovations. It is possible to overpay for a property because you might visit four or five different properties, yet your emotional attachment has been to the most expensive one. That basically means that you overpaid already, without taking into consideration possibilities of dip in market prices.
Related: How To Perform A Real Estate Market Analysis
- Solution: Emotional attachment for investment properties should be non-existent for you as an investor. The right thing to do is to choose based on logical reasoning that takes into consideration your financial situation and your financial goals. If you have to over-pay, then find a way to increase monthly income in order to maintain positive cash-flow.
The Tenant Dilemma
- Problem: Tenants who are living in your property are the best example of how things can go bad in real estate. Having bad tenants that are regularly damaging property and putting you at risk of legal action from neighbors or authorities is the worst thing to deal with. The problem with tenants is it doesn’t much how much screening you make; there is no certainty to avoid the bad apples in a sea of tenants.
- Solution: The only possible solution to avoid clashing or legal/financial issues from tenants is to have legal protection. Hire a lawyer that will draft you a lease agreement that protects you from the actions of your tenants when it comes to damages or contract laws being broken. That way you are at least somehow secure on that front.
Property Selling is not Easy
- Problem: Buying a house is easier when you know what you are looking for, what your budget permits, and what the objectives. Selling your investment is a completely different thing. You will be listing your property, along with thousands of other properties for sale, each of them having different prices and characteristics. Most people think they are able to sell their properties without professional help from third parties who are experienced in that area, but it is recommended to use an agent.
- Solution: There is only one way to avoid being stale for years on the market trying to sell your property. Be sure to ask for a reasonable price from potential buyers, being greedy won’t help. Buyers do their research too. Use real estate agents to advertise the property and bring in visitors to see it and to negotiate with you. Finally, don’t invest in an “unsellable” location. Before purchasing, educate yourself about future construction plans ensure people will favor the area.
Related: Worst Home-Buying Mistakes and Best Tips for Homebuyers and Investors
These are a short list of the negatives that come along with investing in real estate. Depending on what type of investor you are will determine if you’ll face all these issues or not. It all depends on so many factors that are decided by your choices. The ugly side of real estate is sometimes unavoidable; the purpose of this article is problem solving in these certain cases. Being informed and prepared about the risks will always be better than ignorance.