Risk

Risk is the possibility that the actual return on an investment will be lower than expected or that the investor will lose their capital. In real estate, this comes in many forms. "Business risk" is the chance that income will drop due to bad management or vacancies. "Financial risk" is the danger of defaulting on borrowed money (leverage) if cash flow dries up. "Market risk" involves changes in the economy that drive down property values. Investors generally demand higher potential returns ("risk premiums") for taking on higher-risk projects.