While real estate is widely regarded as a relatively safe investment, as with all investing there are risks to be aware about and take into consideration when making your investment decision. Examples of some common risks involved with real estate investing:
• Extended vacancy: an extended period with no tenant can significantly reduce your returns due to a reduction in rental income. We minimize this risk by investing in properties in cities and neighbourhoods where we believe rental demand to be strong and sustainable; and by using a vacancy projection that is higher than the national average in our financial models.
• Tenant default: it can happen that a tenant is no longer able to pay their rent, which will lead to us ending our rental agreement with them. Ending a relationship with a tenant can be time consuming and subject to the tenant’s rights under Dutch law, this could lead to lower net rental income and lower returns on your investment. To minimize the risk of tenant default happening, we have created a thorough tenant selection process.
• Operational expense risk: a property’s operating costs can increase faster than projected and faster than rental income growth. This could lead to lower net rental income and lower returns on your investment.
• Maintenance risk: During the purchase process, we do a deep due diligence and technical inspection on the property to uncover all needed repairs and renovations. However even the most comprehensive preventive maintenance and renovation programs cannot deter unexpected repairs. Costs incurred for such unexpected repairs could lead to lower net rental income and lower returns on your investment, in case these would not be covered by our insurance.
• Housing market risk: the housing market’s strong performance is projected to continue, largely due to demand increasing year-on-year against an entrenched housing shortage. This said, continued strong performance is not guaranteed and there have also been periods of declining house prices in last 25 years (read more). During a possible market downturn, we would manage BRXS properties to further ensure that your investment continues to be profitable but they could reduce the expected returns on your investment.
For additional information and a comprehensive overview on the most important risks we will refer you to the property specific AFM information document.
In the worst-case scenario, where a property cannot be returned to profitability, BRXS will look to sell the property. Under these circumstances, the proceeds from the sale will first be used to repay the mortgage and any selling costs associated with that. The remaining amounts will be distributed to investors, meaning that in case the property had to be sold for a lower price than originally bought, you could lose part or all of your investment.