5 Major Real Estate Risks to Watch Out For
- 2 January 2025
- Munif Ali
In 2024, several pressures drive investors away from commercial real estate. People remain cautious, especially with intimidating headlines on the news. Rising costs and economic changes cause hesitation around real estate investment risk. However, commercial real estate could potentially recover. This article explains the main aspects of each major real estate investment risk to guide your strategies and preparations.
1. Expensive Loans
Taking out loans to buy or renovate a property can get really expensive. Investors struggle to purchase new properties and keep up with payments for owned properties. A high-interest loan for big expenses results in much higher costs down the line, leading to a real estate investment risk for investors.
2. Rising Costs
Repairs and basic maintenance are becoming more expensive, causing property owners to earn less from their rentals. Material repair, labor costs, and property insurance reduce the owners’ profits, making the rental business less profitable. This poses a real estate investment risk for property owners.
3. Uncertain Economy
The ever-changing economy complicates the prediction of each real estate investment risk. Recessions or geopolitical issues disrupt the market, especially for office buildings and stores. Economic uncertainty hinders investors from staying ahead of each real estate investment risk.
4. Empty Spaces
Office buildings and stores frequently remain vacant as more individuals work from home or shop online. As business owners, you adapt to consumer trends, which renders these owned spaces unused. Despite the lack of use, property owners still cover the costs to keep the spaces. Generating less revenue creates a real estate investment risk.
5. Property Losing Value
With rising interest rates, property values can drop, and owners lose money when they try to sell. Increased financial costs reduce the number of potential buyers, which decreases its demand. Properties may remain on the market longer. A diminishing return on investment poses a real estate investment risk.
Soon to Recover
Despite each major real estate investment risk, steady rental income from properties continues to generate substantial profits even if property values decline. Limited construction of new buildings reduces competition, which increases the value of existing properties. Interest rates are also predicted to decrease, enabling individuals to purchase and invest in real estate. To learn more about making smart investments during inflation risks, watch our video on “Smart Investments for Inflation Risk Management.”
Takeaways
- Numerous risks and pressures make investors hesitant and cautious in 2024.
- The major real estate risks in current times include high-interest loans, rising maintenance costs, economic uncertainty, unused spaces, and reduced resale value.
- Steady rental income, reduced competition, and rising property values could potentially restore commercial real estate.
References
Deghi, A., Natalucci, F., & Qureshi, M. S. (2024, January 18). Us commercial real estate remains a risk despite investor hopes for soft landing. IMF Blog. Retrieved September 23, 2024.
Duffy, P. S. (2024, September 19). Multifamily and single-family rental housing market trends. U.S. News. Retrieved September 25, 2024.
Kennedy, T. V., Serpe, J., & Downie, H. (2024, August 12). Three reasons we see a potential comeback in commercial real estate. J.P. Morgan. Retrieved September 23, 2024.
Pullen, J., Dodsworth, J., Leone, E., Olier, J., & Vun, L. (2024, April 23). Real estate 2024: Emerging from the storm?. White & Case. Retrieved September 23, 2024.
Raskulinecz, J. (2024, March 28). Real estate investing in 2024: what you should know. Forbes. Retrieved September 23, 2024.
