Three Main Causes For Losing Your Residential Real Estate Investment

While I can enjoy penny ante poker and various games of chance, I’ve never been enamored by the casinos. In fact, I’ve probably spent no more than $200 or $300 gambling even though I’ve been in dozens of casinos over the last three decades. I have a disdane for any program that expects me to accept the idea that the “house wins” as a ground rule. Yet, many of us including myself have entered investments where we walked away with significant losses and in some cases total losses. The good news is we can identify the main causes of these losses and take steps to protect our capital.
The first greatest risk is playing too loosely with debt. And yet, this is a frequent mantra in the real estate world. The idea of the “no cash down” purchase followed by miraculous events leading to a wind fall. I’ll concede that the event occurs, but I’d argue that this is an extremely risky step (there are conditions where it can make sense, but that’s another discussion). Debt comes with a burden of covenants on factors including Loan to Value (LTV), Debt Service Coverage (DSCR), and guarantor balance sheet strength. Additionally, debt comes at a cost. To secure your capital, you should take steps to ensure that the DSCR ratios are very friendly or that a fall in values doesn’t suddenly place your property in jeopardy. If you find yourself on the wrong side of these events triggering loan default events you may find yourself in a foreclosure with a total loss of capital.
Next on my hit list is the underfunded project combined with a poorly planned use of cash flows. Investors should see to it that the financing and operations plan provides adequate cash for expenses, capital improvements, and ongoing capital maintenance and for accrual of taxes and insurance. Buying And Selling Houses For Profit Failure to provide these (by the way this one of the best sources of good assets) results in a downward spiral ending in a tax lien sale or a project that cannot maintain residents, rents, or profitability. In the end, these events can result in foreclosure or sale at a large or total loss.
Finally, the lack of adequate capital reserves to survive economic downturns, short term occupancy or management issues, and changing financing requirements or other unforeseen events can throw a project into a death spiral and result Vila Velha Real Estate in a total loss of capital. Developing and investment plan providing for these three items or investing in projects offering these is a great way to protect your investment against downside risk and major or total capital losses.

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