What characterizes non-systematic risk in real estate investments?

Non-systematic risk, also known as specific or idiosyncratic risk, refers to the risk inherent to a particular company or asset rather than the market as a whole. This type of risk is unique to a specific industry or class of assets, such as real estate investments. It can arise from factors such as poor management decisions, competitive pressures, or changes in tenant demand that affect a specific property or type of property.

In the context of real estate, non-systematic risk may include issues like localized economic downturns affecting a particular property or specific regulatory changes impacting a certain type of real estate investment. By understanding that non-systematic risk is tied directly to specific assets or projects, investors can often mitigate this risk through diversification, investing in a range of properties or asset classes, rather than concentrated positions.

The other choices connote different concepts. Market-wide economic factors pertain to systematic risk, which affects the entire market and cannot be mitigated through diversification. High returns are more correlated with risk in general and do not accurately define non-systematic risk. Interest rate changes are also associated with systematic risk, affecting all investments, particularly in real estate, rather than being tied to specific assets.