10. Vocabulary: Disadvantages of investing in real estate Terminology: Disadvantages of Investing in Real Estate Investing in real estate can be very lucrative. It is also risky. Before making a real estate investment, wise investors will make themselves familiar with the possible pitfalls of making such Investments. Match the terms relating to disadvantages associated with real estate investments (on the left) with the descriptions or examples of those terms (on the right). Read all descriptions and examples before selecting the best match between each term and description. Type the corresponding letter of the description in the Answer column next to the correct term. These are not complete definitions and examples, but there is only one correct answer for each term. Term Answer Description Business risk A. The time required to perform regular maintenance. Foreclosures B. Requires that buyer make financial predictions about future income and expenses. Illiquidity C. The cost of reviewing a purchase and sale agreement. D. Annual rental revenues may be barely more than expenses. Complexity Dealing with tenants E. Limited market for real estate sales may cause a cash flow crunch. Management demands F. The investment may not be profitable. Low current income G. Value declines due to failure of neighbors with similar properties to pay their mortgages. Unpredictable costs H. Mediate disputes between occupants of the premises. Legal fees I. Buyer may incur costs, sometimes 6-7% of the sale price, simply because ownership changes hands. High transfer costs I New landscaping may be required after a drought. Shannon inherited $100,000. She just made a down payment on a real estate investment of $65,000. Which disadvantage of real estate investing is best represented here? Large initial investment Lack of diversification Interest rate risk