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Patrick Hook, Broker-Associate

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Even though investing in real estate seems pretty simple, there are few risks to consider before making a purchase. you want to make sure you know exactly what you're doing so you don't end up getting yourself in a lot of trouble. Here are some risks to consider before you make any investment.

Know the Area

Before you place money down on a real estate property, you need to look at the surrounding area. This is actually extremely important to the profitability of the investment. The profitability depends on the location's proximity to specific amenities, its neighborhood status, and its views, just to name a few things. Proximity to transportation hubs, freeways, and grocery stores also impact the profitability. Before you choose a specific place, take a look at the area and determine if it's going to grow into a blooming space full of promise or if it will one day turn into an area that hosts a manufacturing facility.

Know the Valuation

The real estate valuation is dependent on the listing price of the property during the sale, taxation, the financing during purchase and the investment analysis. In order to determine the valuation, you need to look at recent sales that compared to the property you're interested in, determine if it's suitable for construction or renovations, and determine if it's suitable for people to use it as a rental space. If none of this checks out, you might want to avoid investing in the area altogether, especially if you used private loans. The payment period for a private loan is shorter compared to the traditional loan which can usually go from one year up to 20 years while private loans can only be granted with duration of up to five years.

Know Your Purpose

Deciding what you're going to use the property for is just as important as deciding on a property. Go into your decision with a goal for the property and if you can't think of one, why are you investing in it? If you can't find a reason as to why you will be investing in real estate, you might want to consider investing in something completely different. While real estate investments are extremely promising, you need to know what your purpose is in order to make some good money off of it.

Taking a look at these three risks listed above can be very helpful before you place money down on real estate property. Knowing the area, knowing the property’s promise, and knowing what you're going to use the property for is key when investing your money or taking out private loans from a private loans lender to do so.