There are several areas in residential investing that represent the majority of risk of loss.
- % of Equity in a Property – when there is low equity and high leverage there is the chance of losing the property during a cash crisis.
- Reserves – lack of money to do needed project can explode into all kinds of secondary and tertiary problems. Lack of capital to make fixes, pay mortgages, or solve a problem results in loss of income, liens or worse.
- Neighborhood Class, Property Class – a property with issues or neighborhood with issues can result in many expensive adventures.
- Tenant Risk – some tenants game the system against owner and cost money, time and increase stress.
- Low Cash Flow – if it is low or negative it will drain resources. During economic emergencies it can be a burden.
- Property Condition – in bad condition a property can be a money pit for an extended period of time.
- Team Competency – incompetent managers, contractors, accountants, and other service providers can point you in the wrong direction and/or use assets inefficiently.
See also Investor Strategy Steps to find out some of the things you should be thinking about as you begin investing.
