3 Risks of Investing in Real Estate (and how to mitigate them)

Investments in real estate have the attraction of promising high economic returns. Properties are one of the most stable and consistent trends where they usually manage to outperform long-term bonds and stocks.

However, like any investment there are risks: How to prevent the 3 risks of investing in real estate?

Years ago, real estate investments were a niche in which only professionals and people with high purchasing power were benefited. In recent decades, many ordinary people (with the support of banking and mortgages) have ventured into this area, which represents a great financial opportunity.

However, in order to support new investors to be able to benefit from real estate, we must, in addition to presenting the economic opportunities, warn of the risks that these could present.

A real estate investment, at first, could be complex, but the chances of achieving the desired goal are high, as long as you avoid the 3 mistakes when investing in real estate.

What are common mistakes when investing in real estate?

When a new investor wants to enter the world of real estate there are some common denominators that put the success of the investment at risk. Next, we will see some of them.

1. Rushing into the investment

An investment in real estate cannot be made without measuring the consequences, that is, in a hurry.

One of the best decisions before investing is to carry out an investigation of where the capital will be deposited. In addition, a balance must be found between the risk that will be taken and the reward that will be paid.

This balance is not a natural “gift”, it is usually learned through practice making investments, and learning gradually.

One of the worst scenarios is that in the face of bad decisions, you end up with a high debt or with many assets that represent risks.

If you are starting out in the world of real estate, one of the ways to mitigate this risk, for example in Panama, is by entering one of the projects under development. There are several of these projects in Panama and generally you pay monthly or quarterly contributions from the beginning until the project is finished (and the mortgage is finally obtained).

The interesting thing about many of these projects is that the agreements could be negotiated with some sort of exit strategy clause (of course, paying only a fine fee), so there is a risk, but it can be measured. In this way, you will be able to make investments with a minimum capital while you gain experience.

2. Being inpatient

The saying “patience is a virtue” is even more real when it comes to real estate investments. We cannot ignore that real estate investments are the most stable; In addition, dividends appear in the medium term.

However, unlike “high risk” market investments, you will not see an immediate return, but you will get regular and stable income.

The most particular case in Panama when buying a property to rent (generally apartments) is how dynamic the rental prices are in the market.

In our experience, we consider that the rental price is cyclical, in some periods the apartment is rented at a very profitable rate, in other cases it is not. It is also important to make a good downpayment at the bank, so that the bill and monthly expenses of the property are always below the rental prices in the market.

For this reason it is important to be patient when investing in real estate, especially in Panama, since the rewards, given enough time to mature, will be seen over time.

3. Lack of research

If making investments is so simple, why don’t all people live from this? The investigation of where the capital will be invested is one of the keys to success. When an investment is made blindly, the risk turns out to be very high and this, believe it or not, is one of the most common mistakes people make.

When you want to make an investment in real estate in Panama and you do not have enough time, it is important to have the support of a real estate agent to carry out the pertinent analysis.

Experienced real estate agents will be able to accompany you in a solid decision where you can minimize risks and enhance the possibilities of stable and regular returns, they will also help you define the best locations to buy a property, the benefits and amenities offered by these options they offer and help in the negotiation of the prices and terms of the real estate you like.