What are the risks associated with investing in real estate?

As with all investing, there are risks to be aware about and take into consideration when making your investment decisions.

Examples of some potential risks involved with real estate investing that can negatively impact your returns:

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.

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 has shown strong performance, 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 on the Dutch housing market).

In a 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.

Few important things to keep in mind:

• As with all investments, diversify your portfolio over time as it limits your exposure to a single property and hence reduces your risk.

• Investment returns tend to increase relative to the length of your investment horizon, so we advise to not invest money that you might need in the short term and only invest money that you can afford to loose. Long term investing also help reduce the impact of potential periods of dips in housing prices.

For additional information and a comprehensive overview on the most important risks we will also refer you to the property specific AFM information document.
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Updated on:
August 31, 2022
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