Realistically, it is almost always a good idea to invest in real estate in the long term. However, there are still some risks related to purchasing properties just as there are risks to any kind of investment. The value of a property can rise or fall based on countless factors that are outside of the control of the property owner. So, you might ask yourself what you can do to protect yourself from fluctuations in the market. There are a few basic principles that you should always try to live by when considering the risks involved in real estate investing.
Don’t Try to Time the Market
Many people have feelings about where the prices of real estate stand at any given time. The issue is that it is extremely difficult to accurately predict when housing prices are too high or too low. Fast Company explains this further:
Housing prices aren’t merely a byproduct of available inventory. They also depend on broader economic factors, mortgage interest rates, loan availability, incomes, and prospects for the future. And even with all the data in front of you, you may notice trends and patterns in pricing changes that seem to be influenced by variables you can’t identify.
The real estate market is often seen as one of the most highly unpredictable markets out there. If you think that you can figure it out, you are likely to be quickly humbled by this assumption. Instead of allowing fear and anxiety swamp you, make sure you understand that the process of real estate investing is about the long game. As long as you stay in the game, your investments should be just fine. It is only when you pull back on your investments that you might discover that you have a problem.
Have an Emergency Fund Available
Surviving a market correction in real estate means being properly prepared. As such, you should have an emergency fund available in liquid assets so that you can worry less about the damaging impact of declining housing prices. The size of your emergency fund will depend greatly on the amount of income that you typically earn. You should set a target for how much you want to save for your emergency fund based on how much you typically earn in a 3-6 month period. You need at least that much money in savings to provide yourself with the stability you need to feel safe about your financial situation no matter what happens with housing.
Reduce Debts
Work on reducing your debts now so you can reduce your obligations if things start to go upside down in the housing market. The less that you owe to others, the more freedom you have to control your own money. That is something that you ought to keep in focus when you are thinking about how you can protect yourself from the possibility that the housing market declines in value.
Select the Right Kinds of Properties to Invest in
Ideally, you should only invest in properties that are solid investments regardless of what is happening with the broader market. This means you should look for properties that are in high demand markets and that are better insulated from the possibility of an economic downturn. It is true that virtually all real estate markets can be harmed when there is a broader downturn. However, you can and should select properties that are appealing even when things aren’t going as well economically. This means that you should look into the schools, business, and other amenities that exist in the area.
There are some things you can do to protect yourself from the possibility of an economic downturn. It is going to be a challenging time regardless, but at least you can protect yourself to some extent.
