There are a number of investment risks. These include:
The property investment market is subject to movement in price in the same way in which bond and share markets are. This means that property values can move down as well as up and clients should be made aware of this before any investment takes place. While it may be the nature of property to increase in value, this is a function of time and the growth potential for the region and property type.
Most property is a large investment and it cannot have a portion of it sold off to meet cash needs or reduce loan debt. Clients must be aware that a commitment to a property investment means that any loans will need to be serviced over the long term and they will have to be confident of the income stream to do this.
Lack of funds to service loans through troubled times can lead to investors losing money should the sale be forced, especially at a time of market downturn.
Given the large amounts that can be borrowed and sometimes at high ratios to the value of the property, the risk of gearing can be an issue. Gearing is the process of borrowing and where investment returns are negative, the client may be in the position of owing more to the lending institution than the value of the property at any one time.
Further risks include: