Investing in real estate can be a great way to build wealth, but it also comes with its own set of challenges. Negative cash flow, volatility, hyperinflation of assets, and difficulty predicting a property's performance are just some of the issues that investors must contend with. In this article, 16 members of the Forbes Real Estate Council discuss the biggest challenges that investors face and how to address them in the coming year. Negative cash flow is one of the biggest problems with real estate investing. Cash flow refers to the amount of money left after paying all expenses, such as taxes and insurance.
Negative cash flow occurs when the amount coming in is less than the amount going out. With uncertainty prevailing in other sectors of the economy, addressing these challenges is a top priority for most investors. Volatility is another challenge for investors in today's market. There are tremendous opportunities, but the uncertainty of the global pandemic and geopolitics make this a difficult period for investors. Long-term investors may prefer to avoid getting into conflict zones and opt for stable investments that can weather the storm.
As an investor, this is the time to review your fundamentals and understand the opportunity cost of investing in trades that don't make sense to you. Understand who, what and where you are investing. Make sure the operator has put their business plan to the test. It's difficult to predict a property's performance over the next 12 to 18 months. In this case, it is recommended to subscribe to it in the worst case scenario.
For example, rent growth of 0% for the first six to 12 months of ownership. The pandemic and economic difficulties have also caused hyperinflation of assets, including property, making it difficult to calculate cash flow. Investors are now weighing the balance between buying properties for revaluation and cash flow. Generally speaking, commercial real estate buyers want a 30% discount, while commercial real estate sellers are only willing to offer a 5% discount. While the type and location of the property influence discounts, a decrease in price generally supports the seller's position more than that of the buyer: industries and multifamily homes are the best performers, while retail and hospitality are the worst performers. These are seven real estate investment risks to consider when thinking about buying investment property.
