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Financial Risks in Real Estate Investing

Summary of the Risks

• Structural risks: We are referring not to the building(s), but to the structure of the financing. This is of prime importance to passive investors. How is the financing for the project put together? The parties with the higher risk should also be in line for higher rewards upon successful completion.

• Construction Delays - This is an occasion when time truly is money. Interest is paid each day whether the project is moving forward or not. See a separate tip for our daily cost calculator.

• Prolonged vacancies - These will lower cash flow, decrease your ability to service debt, and in the case of commercial properties, lower the value.

• Interest rates - Commercial loans are usually shorter term and are subject to interest rate changes every few years. Can this project survive with higher rates?

• Liquidity - Real estate cannot be turned into immediate cash. Adequate cash reserves must be held elsewhere.

For 5 tips on how to manage these risks, click here.