Investing in single-family rental properties can be an inherently risky business. Although there are ample opportunities to make a profit, there are also several 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 expanding 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 Value on your team, you can profitably own rental homes anywhere from Mooresville to properties that are hundreds or even thousands of miles away. In doing so, you can thin mitigate your market-related risks while also looking for investment properties in some of the nation’s hottest markets.
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. Purchasing a rental house with rental rates lower than the current market rate allows 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
There is plenty you can do to help reduce risk when it comes to financing. To reduce your interest rate and the monthly mortgage payment, you can opt to pay a higher down payment. This is a very good way to keep future costs low and protect your investment from real estate market fluctuations if you have sufficient cash on hand.
Another option is finding lenders who offer favorable terms or more creative financing options. 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.
Here are the ways you can greatly reduce many of the risks that accompany investing in single-family rental properties: investing in diverse markets, keeping an eye toward value, and maximizing innovative financing options.
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 704-230-4074 to speak with a Mooresville property manager today.
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