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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 certainly be an inherently risky business. Even though there are ample opportunities to make a terrific profit, there are equally plenty of things that can seemingly go out of control. The good news is that there are lots of good ways to reduce your risk and the eventualities of ending up with a less-than-profitable rental property. By being aware of the top three ways to minimize the risk in your real estate portfolio, you can more protectively drive your investments away from additional hidden pitfalls of rental property investing to reduce your risk.

Invest in Different Locations

Among the best ways to protect your real estate portfolio from downturns in any one market is to broaden and expand outside of a single area. New technologies and platforms have made it hassle-free than ever to invest in properties just about anywhere and everywhere in the country. And, when you include a trusted property management company much like Real Property Management Fairmate on your team, you can successfully procure rental homes anywhere from West Covina to properties that are hundreds or even thousands of miles away. In this manner, you will widely disperse the market-related risks and have investment properties in some of the nation’s hottest markets all at the same time.

Buy Value

One other favorable means 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. But, in actuality, there are a few other ways to think about value. Possessing a rental house with rental rates way lower than the prevailing market rate poses an opportunity to raise rents and safeguard your cash flows.

Another effective option could be to discover a property that, with a small number of inexpensive improvements or adding more and new services, could greatly add as well to the property’s value or tenant appeal (or both). One last point, keeping a close eye on future developments and buying in areas before housing prices start to climb are great ways to be sure that your investment can perhaps offer you stable returns for the coming years.

Secure Favorable Financing

Regarding financing, there are a lot of things you can do to help reduce risk. Paying off a higher down payment can oftentimes essentially reduce your interest rate and monthly mortgage payment. Granting that you have the cash on hand, this is an appropriate way to keep future costs low and protect your investment in resistance to real estate market fluctuations.

Another additional course of action is to find lenders who can impart favorable terms or more creative financing options. Developing creative financing solutions can generally trigger lower interest rates and, because of that, more and more 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 generally comes along with a lower initial interest rate, what that means is that improved cash flow for you. Lastly, after interest rates drop, consider whether it is a good opportunity to refinance higher-interest loans.

In Conclusion

By investing in diverse markets, always acquiring with an eye toward value, and allowing your financing to work for you, you could extremely reduce many of the risks that go with investing in single-family rental properties.

And any time you’ve secured a property or two or three, you’ll need to be sure you have the best property management team on your side. To get more ideas, call 626-691-9749 to have a chat with a West Covina 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.