There are so many rewards in house flipping, but there are a few risks, too. Knowing the common pitfalls involved in property investing helps you identify the highest risk properties and make smarter decisions before sinking too much money into an opportunity.
Some risks are inherent in the properties themselves! We call these “high-risk” properties, and they present more challenges than average properties – ones that could cost you your investment!
What Are High-Risk Property Investments?
Defining “high risk” can make it clearer for new investors as to what’s a good opportunity and what’s a bad one. High-risk investments are those with a high chance of losing capital, under-performing compared to the investment, or of not selling in a profitable timeframe. These are all bad situations to find one’s self in, but it’s why investors should put in a lot of legwork before dropping substantial amounts of money!
It’s important to remember that, when analyzing an investment opportunity, “high risk” can be different for different investors, and are based on circumstances. For new investors or those without a lot of capital, a property with a 50/50 risk – where profit and loss are equally likely – is too high a chance to take. Other investors might have more money and opportunities on the go, and a 50/50 risk might not be so bad in the grand scheme of things!
The highest risks skew this balance far away from the “reward” side of things. If you’re not diligent, you could unwittingly find yourself with one such property!
The Highest-Risk Properties
One type of property with some of the highest risks associated is a condemned property. The costs of restoring a dilapidated, boarded-up home condemned for structural issues could become much higher than the actual value of the house, even after you’ve done your research. Condemned properties can offer many unwanted surprises, and these can eat into your capital very quickly. You could also be liable if problems like rodent infestations become neighbourhood-wide issues.
Another risky venture is any property in areas that experience extreme weather events like flooding. Your work on the investment could be interrupted by a rising water table, leaks in the walls or ceilings, or high winds. These problems can hurt the home and raise your insurance costs too. If buyers know the risks associated with the area, it might be harder to move your investment.
The third type of high-risk property is one in a community experiencing a housing bubble. You might see land values soaring in a certain area and want to get in on the action, but be wary. If the bubble pops while you’re still working on the property, you might not be able to sell it for a profit. Pay attention to news about overvalued housing markets!
“High risk” doesn’t mean “avoid at all costs,” though. With the right advice, a good support team, and other investors joining you in the venture, a riskier property can still be a great opportunity. If you’ve weighed the risks and need some extra advice or help, call Matthew J. Scott today!