Investing in single-family rental properties can be an inherently risky business. Even when there are ample opportunities to earn a good profit, there are also some things that could go wrong. The good news is that there are a lot of good ways to reduce your risk as well as avoid having a less-than-profitable rental property. You can protect your investments from some of the hidden dangers of rental property investing and reduce your risk. You can do this when you know the top three ways of minimizing the risk in your real estate portfolio.
Invest in Different Locations
One of the best ways to protect your real estate portfolio from downturns in any market is by not confining your investments to a single area. Today, it’s a lot easier to invest in properties in multiple areas because of new technology and platforms. And, by having a trusted property management company like Real Property Management Optimum with you, you can own and profit from rental homes anywhere from Glenwood to properties that are thousands of miles away. By doing this, you can distribute the market-related risks as well as look for investment properties in some of the nation’s hottest markets.
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. There are other ways to think about value, too. You can purchase a rental house with rental rates below the present market rate. This will allow you to raise rents and protect your cash flows.
Another option would be to find a property that would let you easily raise the property’s value or tenant appeal (or both) with inexpensive improvements or other services. Finally, keeping a close eye on future developments and buying in areas before housing prices start to climb could be another way to secure your investment, making sure it offers you stable returns for many more years.
Secure Favorable Financing
Talking about financing, there are some ways you can reduce risk. A significant reduction of your interest rate and monthly mortgage payment is possible when you 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.
One more option is by finding lenders with favorable terms as well as creative financing options. Creative financing solutions can lead to lower interest rates and improved 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, you can contemplate whether to refinance higher-interest loans or not.
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’ve secured a property or two or three, look for a quality property management team to assist you. To learn more, call 320-289-4649 to speak with a Glenwood property manager today.
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