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 several things that 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. There are ways to minimize the risk in your real estate portfolio. When you know the top three ways to do this, you can protect your investments from the hidden 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 not confining your investments to a single area. With today’s new technologies and platforms, you can easily invest in properties almost anywhere you want. And, when you have a trusted property management company like Real Property Management Humboldt on your side, you can profitably own rental homes anywhere from Arcata to properties that are on the other side of the country. This way, you can explore investment properties in some of the nation’s hottest markets while also thinning out your market-related risks.
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. Investing in a rental house with rental rates that are below the present market rate will give you a chance to raise rents and secure your cash flows.
One more option is to explore a property that can easily be upgraded with just a few inexpensive improvements or additional services. These can improve the property’s value or tenant appeal (or both). 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. Given that you have enough cash on hand, this can keep future costs low and protect your investment from real estate market fluctuations.
You can also find lenders with favorable term offers or 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 generally come with a lower initial interest rate, which means improved cash flow for you. Finally, when interest rates drop, you can consider if it is ideal to refinance higher-interest loans or not.
As you invest in diverse markets, with an eye toward value and find a financing option that works, you can markedly reduce many of the risks that come with investing in single-family rental properties.
And when you have secured a property or two or three, it’s a smart idea to get a quality property management team on your side. To learn more, call 707-444-3835 to speak with an Arcata property manager today.
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