In preparation for his retirement Mr. De Ayala bought house and lot worth PHP 5,000,000. What risk is associated with Mr. De Ayala’s investment in real estate?*Market RiskInterest Rate RiskPurchasing Power RiskBusiness RiskFinancial RiskDefault RiskManagement RiskLiquidity Risk
Question
In preparation for his retirement Mr. De Ayala bought house and lot worth PHP 5,000,000. What risk is associated with Mr. De Ayala’s investment in real estate?*Market RiskInterest Rate RiskPurchasing Power RiskBusiness RiskFinancial RiskDefault RiskManagement RiskLiquidity Risk
Solution
The risks associated with Mr. De Ayala's investment in real estate could include:
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Market Risk: This is the risk that the value of the property may decrease due to changes in the real estate market. Factors such as economic conditions, interest rates, and local property market conditions can affect the value of the property.
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Interest Rate Risk: If Mr. De Ayala has taken a mortgage to buy the property, changes in interest rates can affect the cost of the mortgage.
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Purchasing Power Risk: This is the risk that inflation will decrease the purchasing power of the money invested in the property.
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Business Risk: If Mr. De Ayala is planning to rent out the property, there is a risk that he may not be able to find tenants or that tenants may not pay their rent.
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Financial Risk: This is the risk that Mr. De Ayala may not be able to meet his financial obligations related to the property
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