Investing in single-family rental properties can be an inherently risky business. Since there are ample opportunities to make a very good profit, a lot of things could go wrong. The good news is that there are several good ways to reduce your risk. These will also reduce your chances of ending up with a less-than-profitable rental property. If you know the top three ways of minimizing the risk in your real estate portfolio, then you can confidently keep your investments away from some of the dangers of rental property investing and reduce your risk.
Invest in Different Locations
One of the best ways to protect your real estate portfolio from downturns in any market is by investing in more than one area. Because of new technologies and platforms, it has become much easier to invest in properties almost anywhere. And, when you include a trusted property management company like Real Property Management Republic on your team, you can profitably own rental homes anywhere from Magnolia to properties that are hundreds or even thousands of miles away. By doing so, you can explore investment properties in some of the nation’s hottest markets while distributing your market-related risks at the same time.
Buy Value
Another great way to mitigate real estate investing risk is to “buy value.” Value investing means finding properties priced below market value. In the single-family rental home market, this could be as straightforward as searching for underpriced properties. However, there are more ways to think about value. If you want to raise rents and secure your cash flows, you can buy a rental house with rental rates below the current market rates.
Another way would be to secure a property that is easy to improve on. You can increase the property’s value or tenant appeal (or both) with inexpensive improvements. Finally, another way to ensure that your investment will continue to offer you stable returns, you have to keep a close eye on future developments and buy-in areas before housing prices start to climb.
Secure Favorable Financing
There are a variety of ways to reduce risk when it comes to financing. If you want to reduce your interest rate and the monthly mortgage payment, you can pay a higher down payment. If you have enough cash on hand, this is a very good way of keeping future costs low and protecting your investment against real estate market fluctuations.
Finding lenders who offer favorable terms or creative financial options is also a good strategy. Creative financing solutions may bring about lower interest rates as well as increased cash flow. For example, if you plan to hold a property for less than ten years, you might benefit from an Adjustable Rate Mortgage (ARM). ARMs often come with a lower initial interest rate, which means improved cash flow for you. Finally, when interest rates drop, refinancing higher-interest loans becomes an opportunity for you.
In Conclusion
As long as you invest in diverse markets, but with an eye toward value, and work out creative financing options, you can greatly reduce many of the risks usually associated with investing in single-family rental properties.
And as soon as you have secured a property or two or three, you would be smart to make sure you have a reliable property management team on your side. To learn more, call 281-362-5001 to speak with a Magnolia property manager today.
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