Risks to consider before buying a house

Risks to consider before buying a house

Investing in real estate is not an investment like any other. First of all there is the financial aspect, wondering for things like if the prices will rise in the future or whether you are paying the right price or not. Real estate investing also carries other considerations of a more personal matter because you have to consider if you buy a house that to cover your need of having one and, in the mean time, it is also an investment.

When you find the home of your dreams and you are in a position to deal with the expense, the price may be less relevant. The moment you decide to do so, however, you should keep in mind these four risk factors.

Do your research and learn the risks

Do your research and learn the risks

1. Idiosyncratic risk and lack of information

The market fragmentation and lack of information circulating on the quality of the buildings makes this area particularly difficult to analyze. Think your town: prices from one neighborhood to another can be very different, and often this divergence is related to factors so specific (the neighborhood) that a normal investor has difficulty in realizing it.

2. Liquidity

How long will it take to sell a house? As a rule, it will take a few months, even when you find a buyer quickly. Without thinking that, in times of crisis, it can take up to several years to get rid of a property, on which you have to pay taxes and maintenance costs.

3. Costs

In addition to the start-up costs (legal fees and management) must be added the cost of ownership (condominium fees or chores), not to mention taxation. And even before that, to make the house appealing, you may need to do some maintainance, such as painting and furniture that could be quite expensive.

4. Diversification

Buying a home usually requires a huge expense compared to its total assets, it may be a good slice, focused on a single or few assets.

In short, if buying a house is the dream of your life or you have found one that matches your requirements, the pure financial aspect is not the only thing that matters in a real estate investment. Take into account the aforementioned risks to be sure you know what you are doing.

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