Investing in single-family rental properties can be an inherently risky business. Though there are indeed ample opportunities to make a substantial profit, there are also a lot of things that could go wrong. The good news is that there are a lot of good ways to reduce your risk. This will also help you avoid 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. Today, it’s a lot easier to invest in properties in multiple areas because of new technologies and platforms. And, when you include a trusted property management company like Real Property Management Eclipse on your team, you can profitably own rental homes anywhere from Lynnwood to properties that are hundreds or even 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.
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 though. 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.
One other option is to find a property that is easily upgradeable with basic, inexpensive improvements. These can greatly increase 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 could be another strategy to ensure that your investment will keep on offering you stable returns in future years.
Secure Favorable Financing
Talking about financing, there are several 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 cash on hand, this is a good way to keep future costs low and protect your investment from real estate market fluctuations.
Another option is to find lenders who can offer favorable terms as well as creative financing options. Exploring these creative financing solutions could give you lower interest rates and improve your 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 usually come with a lower initial interest rate, which means improved cash flow for you. Finally, when interest rates drop, it might be an opportunity to refinance higher-interest loans.
When you invest in diverse markets, with an eye toward value and explore other financing options, you can reduce many of the risks 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 425-209-0252 to speak with a Lynnwood property manager today.
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