Real estate is the go-to choice for most investors looking to build and sustain wealth. These traditional investors consider buying houses, apartment buildings, retail spaces, and other types of residential, commercial, and industrial properties a less risky option compared to stocks, mutual funds, crypto, etc.

However, the real estate industry is not free of risks. Investors are just as likely to lose and fail to achieve a positive return on their investment. Therefore, you have to do your due diligence and account for the most common real estate investment risks in the market today.

Keep reading to learn about the five main risk types.

5 Types of Real Estate Investing Risks You Should Know About

1. Structural Risk

Structural risk is the most basic risk type in the real estate market. It is related to the financial structure of any property investment. Most property investors opt for financing to fund their purchases. As a result, debt is an essential part of most investments. Until that debt is paid in full, lenders, developers, and equity investors are all at risk of losses.

2. Market Risk

Market risk is associated with fluctuations in the real estate market that can result in inflation, deflation, recession, and property depreciation. To minimize this risk, most savvy investors try to diversify their investment portfolios and ride out the market volatility while avoiding losses.

3. Liquidity Risk

Liquidity refers to the ease at which an asset can be sold for cash. Traditionally, real estate has always carried the highest level of liquidity risk as selling properties can take time due to fluctuating market conditions, limited buyers, and other factors.

4. Property-Level Risk

Property-level risk refers to the risks shared by different property types. For instance, apartments near colleges have a higher risk of vacancies during summer times than apartments near commercial hubs. Conversely, commercial buildings are less sensitive to consumer demand than retail stores and recreational centers.

Another example of risk variance is in self-storage units and warehouses. Due to the constant shift in the demand for seasonal products, investors opting for these spaces face a greater risk of turnover, delayed payments, and long vacancies.

5. Idiosyncratic Risk

Finally, the last type of real estate investing risk you should know about is idiosyncratic risk. This risk comes into play when certain circumstances or conditions affect revenue generation. For instance, investors investing in an under-construction apartment building have to invest with the risk of not collecting rent during the construction period.

Similarly, natural disasters, fires, mold, and other issues can all put income generation on hold.

Wrapping Up

No matter the type of investment property you’re looking to purchase, you should inquire about the real estate investing risks above. Knowing these risks will help you understand your risk tolerance and make more informed decisions.

For more interesting reads related to real estate investing, visit the CHRE website. You can also explore our vast options of investment properties in Rio Grande Valley.