15 Ways Real Estate Investing Could Go Wrong

Investing in real estate can be a great way to diversify your portfolio. You may also earn generous returns if you make the right choices about which real estate assets to buy.

But like any investment, there is a risk that things could go wrong. In particular, there are 15 big issues that could develop and make you regret your real estate investment. Here's what they are.

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Ideally, you will make money on real estate investing if the properties you buy increase in value after purchasing them. But this doesn't always happen. Sometimes, you might end up watching your investment actually decline in price.

While real estate most often appreciates over time, you need to know there is no guarantee. To maximize the chances you do make money, aim to be a long-term investor, as this reduces your risk of loss.

ALSO READ: Worried About a Housing Market Crash? The Smartest Real Estate Investors Know These 3 Things.

Paying too much for a property means it will be harder to make a profit, and you could end up owing more than the building is worth -- especially if property values ultimately fall. To make sure you don't overpay, do your research carefully before committing to buy.

If you are planning to use the property for a specific purpose, such as renting it out to commercial tenants or using it as a short-term vacation rental, you need to make sure it's zoned for the desired use and that the homeowners association (HOA) rules, if any, allow it.

You also need to be aware that it's possible these rules could change over time. In fact, a number of communities have moved to impose new restrictions on short-term rentals in recent years.

ALSO READ: What Is a Conditional Use Permit in Real Estate?

When you own a property, you must maintain it in good repair to protect its value. Unfortunately, major repairs could become necessary, potentially costing a fortune and making it very difficult to profit from your investment.

An inspection can help you identify impending issues before you purchase a property. But inspectors don't catch everything, and unexpected problems can still arise over time.

If you are planning to purchase an income-producing property, the rent you collect must exceed your expenses for your investment to perform as planned. If you underestimate how much it will cost to own and maintain the property, that may not happen.

Obviously, you need to take repair and maintenance costs into account, but don't forget other expenditures that may become necessary, such as snow plowing in the winter or marketing the property to find new tenants if there is high turnover.

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On the other side of the coin, if you overestimate the amount you can make from the property, you may not be able to cover your costs and bring in extra income.

Be sure to carefully research the property's history and the performance of comparable investments in the same area to get a realistic idea of how much money your investment will provide you.

ALSO READ: How to Make Money in Real Estate

If you are buying a property to rent out, you will turn a profit and be successful only if you can consistently find tenants. If the rental market is saturated or your property is too expensive or doesn't offer all the desired amenities, it may be hard to keep the space filled.

The more time your property is vacant, the harder it will be to turn a profit since you still have carrying costs even if rent is not coming in.

Once you find tenants, you could run into trouble, and your investment could go very wrong if they don't pay as promised.

Eviction is an option for resolving the problem of tenants not paying their rent. But it is time-consuming and expensive, so you'll want to try to avoid this at all costs by doing thorough credit and reference checks.

ALSO READ: Stimulus Funds Helped 1.36 Million Renters Avoid Eviction in 2021 -- but Will Evictions Pick Up This Year?

Your tenants could also violate the other terms of their leases, even if they pay rent as promised.

Renters could be doing illegal activities, making lots of noise, or otherwise causing problems for you. And that could become an annoying issue, making managing your rental take much more time than planned. And, again, if you're forced to evict, you could spend months in court and incur legal expenses.

Hiring a property management company is a good way to simplify the process of owning rental properties. The company can handle many issues that arise so that you don't have to.

But some management companies are better than others. If the people you hire don't do their jobs correctly, it could compromise the reputation of your building and leave you dealing with problems. You'd also have to spend time replacing the company.

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If you've never owned a rental property before, you may be very surprised to discover how much time and money is required to do it successfully. If you simply find yourself annoyed with the work involved in owning an investment property, it could be difficult to undo your mistake and get out of the real estate investment business.

ALSO READ: Are You Landlord Material? Here's How to Find Out

Real estate is not a very liquid investment. Unlike stock shares, which you can just sell on the market to a huge pool of potential buyers, you would need to find someone who wants your specific property if you decide to sell.

This can take time, and you may not always get the price you hoped for -- especially if you have to sell quickly.

Chances are good that you'll end up borrowing to buy real estate. If you do, it's important to make sure you get a mortgage you understand and that will always be within your budget.

Some loans, such as adjustable-rate mortgages, can get more expensive over time and could become impossible to pay. If you are at risk of foreclosure, there's a very high chance your investment will turn into a disaster.

ALSO READ: How to Get a Mortgage

The real estate market could become inflated; it could also suffer a crash if a real estate bubble bursts. If the market crashes at an inopportune time, your investment could decline in value. You can reduce this risk by investing for the long-term, but it's still not fun to buy a property and see the price fall dramatically a short time after.

Finally, if you want to make a lot of money from owning rental properties, you may want to own several of them. But the more properties you own, the more work and time is involved in managing all of them. This could become overwhelming and make you decide you prefer more passive investments.

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The good news is you can minimize or eliminate the chances that many of these problems will occur. You can do that by being smart about what you invest in.

If you don't want to take the chance of having problems with property ownership, you can opt to invest in real estate investment trusts (REITs) instead. Or if you do want to physically own buildings of your own, you can do lots of research and be cautious about how many and which ones you buy.

The important thing is to think through your investments carefully and make certain you're always making informed choices about how best to gain exposure to real estate.

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