How Risky Is Real Estate Investing?

a person sitting on a pile of coins

Retail investors are constantly assessing risk and reward as an ongoing project within traditional and alternative investment circles. Private individuals are learning to approach the market in much the same way that institutional investors might (as borrowers, by leveraging collateral and using alternative investing streams to bolster traditional stock market holdings), and this includes the use of high volatility and high dollar asset classes that grow more wealth than the traditional investment opportunities that many individuals might typically turn to in order to grow their savings portfolios.

Whether you’re looking to create a new cleanroom design for commercial property or want to expand into the residential property market, real estate offers a unique value for money that no other asset class can boast.

Evaluating risk in the real estate marketplace follows much the same patterns of analysis as any other asset class might require. However, there is a unique, personal element involved in the real estate venture that is somewhat removed from many other assets like gold bullion or stock market holdings. Before diving into the property market it’s a great idea to become familiar with this risk landscape in order to work at mitigating the sources of default or a capital loss.

Factors that Create Risk


Real estate is riddled with potential sources of risk, however, with a targeted approach to purchasing and deployment of assets you can mitigate many of these factors and create a safe capital generator with a high yield.

The first and most volatile source of uncertainty in the property market is the emotional nature of human beings. In order to create dividend wealth from your rental properties, you will find a renter who will take responsibility for space and for payments in return for your service as a landlord. In any investment that relies on other people, there will always be a certain amount of risk that can’t be eliminated entirely. As an investor looking to branch into the real estate field, you will have to contend with the fact that life is messy and the loss of a job, a sudden medical bill, or a variety of other circumstances such as coronavirus-related hardships could create an unforeseen financial burden that alters your tenants’ ability to pay rent and your cash flow stability as a result.

In addition to the human element of the real estate market, there is also the very real problem of fluctuating property pricing to contend with. While real estate tends to appreciate greatly in value over the course of many years, there are certain hiccups that can eliminate these gains in a single calendar year. The housing crisis that gripped the United States and then the entire world in 2007 and 2008 sent property value careening off the side of a cliff, and many markets are still recovering from this massive hit to property possession.

For those who are still yet to be convinced, a trust might be the perfect option to dip your toe into the property market without having to deal directly with these two major sources of uncertainty. Asking ‘how safe is Yieldstreet?,’ or another REIT-type asset fund is an important part of becoming a new investor in a smart way. Often, new investors will jump at the opportunity to purchase shares in a real estate trust that nets massive dividend profit without the management responsibility that typically goes along with such high-yielding investment opportunities. The Yieldstreet Prism Fund is but one fantastic investment opportunity extended to Yieldstreet investors among many other high annual yield options.

Cause for Celebration


There are many upsides to the property marketplace, however. While these risks are certainly something to factor into any investment decision, there are many, many benefits to owning a residential or commercial property as an investment asset. John Foresi from Venterra Realty helps clients in his local Texas market to realize their dreams of retirement and passive income by targeting properties with a great history.

By purchasing properties that have been well maintained and offer a turnkey asset—or one that requires minimal updates—you can immediately put your capital to work. With the market analysis that comes along with a professional realtor, like the ones at Venterra, you can be sure that you are buying in an upward trending market and will continue to see your asset appreciate in value over the years to come.

The Human Element


Similarly, forging relationships with the tenants in your apartment homes is the best way to mitigate the risk of non-payment. Many landlords will share horror stories about eviction proceedings and vandalism within their properties, but none of these tales begin with a professional friendship being fostered between landlord and tenant. Getting to know the people who call your property home and understanding their needs and wants is the best way to ensure that you will not face a significant hurdle when it comes time to find a new rent-paying tenant. The cold truth is that landlords need this capital to pay their own mortgage loan and interest payments back. Otherwise, they can’t continue building equity in the underlying asset and avert the risk of losing the home to foreclosure due to non-payment. The reliance on this income makes the equation somewhat risky, but incredibly lucrative if done right.

While this risk can’t be eliminated entirely, the vindictive subset of renters can be removed from your line of thinking if you get to know the people who rent property from you. Building healthy respect here will go a long way to securing your investment’s earnings over the long term.

Real Estate carries some risks, but the rewards often outweigh these potential pitfalls. Make sure you approach the market with the same caution and research as you use in your other investment opportunities.

Nola Blanton researches, organizes, and delivers high-level and impactful strategic content that helps OI's readers understand, discuss, and prepare for emerging trends in business and marketing.

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