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3 Ways to Minimize Risk in a Real Estate Portfolio

Coin Graphs with Model HomesInvesting 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 plenty of good ways to reduce your risk.  These will also reduce your chances of ending up with a less-than-profitable rental property. You can safely corral your investments from some of the hidden dangers of rental property investing and reduce your risk.  You can do this by knowing the top three ways to minimize 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 through investing in multiple areas. Investing in properties in different areas is now a lot easier because of new technologies and platforms. And, when you include a trusted property management company like Real Property Management Raleigh on your team, you can profitably own rental homes anywhere from Rolesville 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 also other ways to think about value. 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 is another strategy to ensure that your investment will offer you stable returns in the years to come.

Secure Favorable Financing

When it comes to financing, there is a plethora of ways to reduce risk. One way is by paying a higher down payment.  This can reduce your interest rate and monthly mortgage payment. If you have sufficient cash on hand, this is a good way that you can protect your investment against real estate market fluctuations and keep future costs low.

Finding lenders who offer favorable terms or creative financial options is also a good strategy. Explore these creative financing solutions as these usually give lower interest rates and improved cash flow at the same time. 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 think about refinancing higher-interest loans.

In Conclusion

Through investing in diverse markets, purchasing properties with an eye toward value, and exploring unique financing options, you can further reduce many of the risks that are part and parcel of investing in single-family rental properties.

And when you’ve secured a property or two or three, make sure you have a reliable property management team on your side. To learn more, call 919-481-0008 to speak with a Rolesville property manager today.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.