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Real Estate Investing Risks

Common Real Estate Investment Risks

All investments carry a degree of associated risk. The term risk can be defined as the likelihood of loss on an investment when it comes to expected returns. Risk is something all investors face. Understanding risk in the real estate industry requires the investor to quantify certain metrics that are not easily quantifiable. If you are looking to invest directly into a property or fund larger real estate investments, there are three common risks to consider:

  • Risk of not getting what you paid for
  • Risk of bad or no tenants
  • Risk of fluctuation or decline in the housing market

Doing your homework in a real estate investment is a must. If you don’t gather the right information, or simply not enough of it, you run the risk of facing unfavorable surprises, financial and physical. If you’re investing in a rental property and are not aware of foundation damage, this could hurt your investment. Similarly, if you don’t do your homework on a fund prior to investing, you could miss crucial information relating to the fund's yield and dividends. On another note, bad tenants at the end of the day negatively affect cash flow and financial security. Some would argue that the biggest risk all when investing is in real estate is the health and state of the housing market. In the event of a housing market crash, all real estate investments face loss.

Common risks aside, there are more detailed risks associated with specific types of real estate. The following section will explore the varying levels of risk associated with the major types of real estate transactions.

Risks Associated with Different Types of Real Estate Investments

  • Homeownership: There is always risk of default with a home ownership investment. People tend to invest in a home before they pursue a career in real estate or acquire additional real estate investments. For this reason, lack of experience in an initial investment can result in financial woes. Similarly, any event that would warrant the inability to make mortgage payments could ruin an investor’s credit and lead to loss of property by the bank in a foreclosure. Another risk is that the property could lose value over time, especially if no updates are made to increase its value. Often, you will see homeowners that haven’t made updates to a property, at selling time, forced to reduce the list price.

  • Private Equity Risks: Risk associated with private equity investments, especially in the distressed property sector of the real estate industry, stems from not being able to renovate and sell the property in a timely fashion. Often, in a private equity investment for a distressed property, you’ll see unforeseen issues sprout up along the way, from construction, to building code violations, to finance issues etc. When this happens, investors may have to extend their estimated time of completion which can cause the property to sit on the market longer. The longer a property sits on the market, the less take home profit the investor can take home. Even if renovations go according to plan, if there are no interested buyers, the property will still sit on the market ultimately costing the investor more and more.

  • REIT Risks: REITs are publicly traded, so volatility risk plays a role with the selling and buying of shares of REIT stock. More often with REITs you will see drops in real estate prices, and this causes a REIT to underperform. When real estate prices drop and prime rate interest rates rise, REITs have a tendency to produce negative total returns.

  • Crowdfunding Risks: Risks of crowdfunding mostly center on rises and declines of the housing market. Keep in mind, if there is a housing market crash, all real estate investments will take a hit, not just crowdfunding investments.

  • Home Equity & Line of Credit Risks: The biggest risk in a home equity loan or line of credit is ease of spending. This can lead to default. At the end of the day, available capital is easy to spend. In both a home equity loan and line of credit, payments are low and credit levels are high. In the event of default, the borrower’s home may be foreclosed on by the bank and significant credit damage may ensue.

  • Commercial Loan Risks: A major risk associated with commercial loans is that they require a lot of start-up capital at the time of purchase. Loss or lack of tenants, for instance in the event of a recession, can drastically impact the expected return of a commercial property investment. The major risk in commercial property is little to no produced income.

In Summary

All investments require a degree of risk. While some consider real estate investments to be a safer option, an investor must do research and find out as much as they can about a property or deal prior to executing an investment. An investor also must understand the state of the housing market. In the event of a crash a real estate investment would not result in a total loss, but it could warrant severe financial consequences. The most important steps in any real estate investment are: do your homework, choose a good location, and aim for a good time to purchase when the market is healthy and demand is relatively high. If you are preparing for your next real estate investment, CityVest can help, contact us today for more information on available crowdfunding deals and associated risk.

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    Every CityVest investment undergoes a thorough due diligence process by our experienced underwriting team. Of the hundreds of projects reviewed each month, fewer than 1% are approved.

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      You benefit through professional investment structures, which target passive returns for our investors in a range from 10% to 25% - often with a preferred return.


      CityVest pre-screens investments for you through our underwriting and due diligence process. We partner with institutional investment funds and sponsors and we seek a preferred rate of return.


      Since real estate investments typically generate cash flow income, while common stock does not, real estate valuations tend to be less volatile and less sensitive to market risk factors.


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Investing in securities or real estate (the "Investments") poses risks, including but not limited to market risk, credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Investments are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments. Nothing on this website should be regarded as investment advice, either on behalf of a particular security or regarding an overall investment strategy, a recommendation, an offer to sell, or a solicitation of or an offer to buy any security. Advice from a securities professional is strongly advised, and we recommend that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any real estate investment.

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The presentation at the website includes information provided to CityVest by the fund being described. It contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express fund manager’s current views concerning future events, trends, contingencies or results, appear at various places in this presentation.

Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “targets,” “plans,” “may,” or other similar words (including their use in the negative). Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this presentation. We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause the fund’s actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

■ Increases in the Company’s borrowing costs as a result of inflation and increasing interest rates and other factors;
■ Changes in real estate market and general economic conditions or economic conditions in the markets in which the Company may, from time to time, compete, and the effect of those changes on the Company’s or revenues, earnings and Offering sources;
■ The ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases, the Company’s ability to reposition its units on the same or better terms in the event of nonrenewal, including in the event of a recession;
■ Our ability to make acquisitions and dispositions and successfully integrate the businesses we acquire;
■ The Company’s limited operating history;
■ The Company’s success in implementing its business strategies;
■ The nature and extent of future competition, including new construction in the markets in which the Company and its facilities are located;
■ The Company’s reliance on key personnel;
■ The Company’s reliance on third-party vendors of technology, in particular the technology used to process and collect payments, or in the Company’s self-service kiosks or unmanned onsite operations and management;
■ Risks associated with the lack of liquidity of the Company’s securities; and
■ The impact of litigation or any financial, accounting, legal, tax or regulatory issues that may affect the Company or its tenants.

The factors noted above are not exhaustive. The Company operates in a dynamic business environment in which new risks emerge frequently. Further information about the Company’s businesses, including information about factors that could materially affect its results of operations and financial condition, is contained in the Company’s Private Placement Memorandum, which you should read before deciding to invest.