Are our real estate investments risky? According to Gallup's annual Economy and Personal Finance Survey, real estate is the most preferred investment. It has been ranked at the top of the list for 35 percent of Americans since 2013.

Real estate investing is not the safest investment option. However, real estate investing is like any other investment. These are seven potential risks that you should be aware of when investing in real estate.

The Real Estate Market Is Unpredictable

Many investors believed that the real estate market would only go up in the lead-up to the 2008 Great Recession. It was based on the assumption that if you buy a property now, it will be worth a lot more when you sell it later.

Although real estate prices tend to increase over time, they can also decline. Real estate trends include prices and rental rates. They are affected by supply and demand, the economy and demographics, and interest rates, and government policies. It is possible to lower your risk of being caught up in a trend by doing thorough research, due diligence, and monitoring your real estate holdings.

Choosing A Bad Location

When buying an investment property, the location should be considered first. You can't move an apartment to a better neighborhood, nor can you move a store from an abandoned strip mall.

The location is the most important factor in determining your ability to make profits. This includes the demand for rental properties, the types of properties that are most in-demand, the tenant pool, the rental rates, and the appreciation potential. The best location will generally generate the greatest return on investment. First, however, it is important to research the best places.

Negative Cash Flow

The cash flow from a real estate investment refers to the money left over after all expenses, taxes, and mortgage payments have been paid. Conversely, negative cash flow is when there's less money coming in than going out. This means you're losing money.

Negative cash flow is most common for the following reasons:

• High vacancy

• Too much maintenance

• High financing costs

• Rent not being charged enough

• The worst rental strategy is not used

Do your research before you buy to minimize the chance of negative cash flow. Make sure you do your homework to ensure that the property is in a good place.

High Vacancy Rates

You need tenants to rent out your single-family home or office building. Therefore, there is always the possibility of high vacancy rates in real estate investment. High vacancies can be especially dangerous if you depend on rental income to cover the property's mortgage and insurance. Property taxes, maintenance, property taxes, and other expenses are all included.

You can avoid high vacancy rates by buying investment properties in high demand and in good locations. For example, if you do the following:

• Your rental rates should be within the market rate for the area.

• Promote, market, and advertise your property. Be aware of where your target tenant may be looking for information about your property (e.g., traditional methods). Online?

• As soon as the current tenant gives notice that they are leaving, start looking for tenants.

• You must ensure that your property is neat, tidy, and well-maintained

• Tenants will be happy if you offer incentives and rewards.

• Get help from a professional real estate agent to list your property.

• Establish a reputation as someone who is nice and rents quality properties (example: Airbnb reviews).

Problem Tenants

You want to avoid vacancy risk by keeping your investment properties occupied with tenants. Problem tenants can also be a risk. Bad tenants can be more costly (and more trouble) than no tenant. Tenants who are:

• Pay on time or not at all, which could result in a costly and lengthy eviction process

• Get rid of the property

• Do not wait to report maintenance issues.

• You can host additional roommates (humans or animals).

• Do not ignore their tenant responsibilities.

Although it is impossible to prevent a tenant from being a problem tenant, you can take steps to protect yourself. First, every applicant should be subject to a criminal background check. You should also contact the previous landlords of each applicant to check for red flags such as late payments, property damage, and evictions.

You should also investigate the work history of potential tenants. You should ensure that they have a sufficient steady income to cover their rent and living expenses. Paying attention to their work history is also important. For example, a person who is constantly changing jobs may not be able to pay rent. This could lead to them being more likely to move during a lease.

Hidden Structural Problems

Underestimating the cost of maintenance and repairs is a sure way to lose your investment. For example, a typical home with a single-family could cost $12,000 to fix a foundation and $16,000 to replace the siding. Commercial buildings could easily run into the tens of thousands.

This risk can be reduced if the property is thoroughly inspected before you purchase it. Hire a reputable and qualified property inspector, contractor, or mold inspector to inspect the property and find hidden problems. Find out the cost of fixing a problem and then either make a deal with them or leave if you cannot make a profit.

Insufficient Liquidity

Stocks can be easily sold if you have the funds or want to cash in. Unfortunately, this is not the case for real estate investments. If you have to sell your property quickly due to lack of liquidity, you might end up selling below the market or at a loss.

There are a few things you can do to reduce the risk. First, however, you can tap into your equity to get cash if you have a need. For example, you can take out a home equity loan (for residential rental properties), do a cash-out-refinance--or, for commercial properties, take out a commercial equity loan or equity line of credit.

The Summary

Traditional real estate investments have been considered sound. Smart investors can reap the benefits of passive income, high returns, tax advantages, diversification, and the chance to build wealth. However, real estate investing is risky, just like other types of investments.

Do your research and conduct a thorough rental property and real estate market analysis to reduce your risk. Hire professionals to inspect the property and screen potential tenants. Also, learn as much as you can about the real estate market.

There are many ways to invest in real estate. There are many options: real-estate investment trusts (REITs), real estate stocks, property crowdfunding, and real estate partnerships.

It might be worth investing in yourself, learning new skills, or obtaining a license. For example, many real estate investors become licensed brokers or real estate agents, not to be a broker but to benefit from the multiple listing services (MLS), access, networking, commissions, and more.