Real Estate Investments Have Inherent Risks
The purchase of your home is speculative, with no guaranteed price in the future, when you sell. As you live in your home, it’s value can drop significantly from physical damage, unexpected repairs and maintenance, negative rezoning, environmental liabilities, and neighborhood blight. And in extreme cases you can suffer the entire loss of your investment in your home.
Real Estate purchased solely for investment purposes; however, is subject not only to the Risks found in home ownership, but it is subject to additional Risks as well. While this is not an exhaustive list, some of these additional Risks include:
- changes in national and local economic conditions
- changes in the demand for or supply of competing properties
- changes in local market conditions and neighborhood characteristics
- availability and cost of mortgage funds to meet fixed and maturing obligations
- availability and cost of necessary utilities and services
- changes in real estate tax rates and other operating expenses
- changes in occupancy, operating expenses and rental schedules
- changes in the financial condition of tenants
- changes in federal and local rent controls and real property tax rates
Special attention must be given to Real Estate Debt (Leverage), since most Real Estate is purchased using Debt. While debt increases the return on invested capital, debt also presents additional elements of risk, particularly when cash receipts from operation of the Property are insufficient to meet the principal and interest payments on such indebtedness.