You as investor should fully understand and analyze all the risk that is involved in the type of investment you choose. Always remember that the higher the risk you take the higher returns you could receive but at the same time there are more chances of you taking a loss. There is a low risk investments e.g. bank deposits and a high risk investment e.g. shares. There are two types of risks in investments
Volatility – the possibility of an investment to fluctuate in value is known as volatility. A higher volatility means that a security can change dramatically over a short period of time (either goes up or down). A lower volatility means that a security’s value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.
Performance – there is possibility that the performance of the investment would fail and you could lose all or part of your money or the investment returns can be lower than what you expected or needed. In the cases where you are considering high risk investments than you should make sure to balance your risks with other investments in lower risk areas
Mortgage rates Increase : If the interest rates goes up, your repayments will increase. This will hit you in the pocket as you will have less returns for your investment. Can you afford to pay extra if this happens ?. Always have some sort of backup just in case and make sure you are prepared to increase your repayments if need be.
Insurance premiums : The insurance premiums for your investment property could go up and you will have pay extra for your premiums. Always have some money set aside for this just in case
Property market collapse : Property market is not stable and it is continually changing, so be prepared to take a hit if the market goes down. If you are buying to resell make sure you are prepared to keep the property longer if the property prices fall in the short term. If the property market collapse then you will be paying the vender more than what your property is worth. To avoid this make sure you spread your investment and have backup just in case.
Selling during down time : if for some reason you had to sell your property at a time when the property value is low, you will be left still owing money to the lender after you have sold your property.
No Rent : Finding the tenants for rental property can be a big hassle, also getting them to pay on time and keep the property neat and tidy will be a nightmare so when buying a property for rental investment make sure you to hire a property manager. They will make sure that the property is always rented and keep an eye on the tenants