Investing in single-family rental properties carries inherent uncertainties, yet it offers the promise of excellent profit. By mastering the top three ways to minimize the risk in your real estate portfolio, you can confidently steer your investments away from the hidden dangers of rental property investing and effectively reduce your risk.
Diversify Geographically to Protect Your Portfolio
To protect your real estate portfolio from downturns in specific regions, focus on diversifying your investments across various locales. Modern technologies and platforms have simplified investing in properties across the country, making it more accessible than ever.
By collaborating with a trusted property management company, you can seamlessly own rental homes in various locations. This strategy helps spread market-related risks while allowing you to take advantage of investment opportunities in the nation’s hottest markets, strengthening your portfolio’s resilience.
Buying Below Market Value Reduces Risk Exposure
A powerful approach to mitigate real estate investing risk is to embrace the principle of “buy value.” Value investing involves finding properties priced below market value. This might mean searching for underpriced properties within the single-family rental home market. However, value can be uncovered in other ways.
Consider acquiring a property where inexpensive improvements could significantly raise the property’s value or enhance its tenant appeal. Alternatively, staying informed about future developments and purchasing in emerging areas before prices surge can ensure your investment will offer you stable returns for years to come.
Choose Financing That Keeps Your Costs Low
To reduce your risk in financing, opt for a larger down payment. This can lower your interest rate and reduce your mortgage payment, helping to keep future costs low.
Seek out lenders who offer better terms or explore creative financing options to secure lower interest rates and improve cash flow. If you intend to own a property for less than ten years, an Adjustable Rate Mortgage (ARM) may be advantageous due to its typically initial interest rate being lower.
Additionally, when interest rates decline, consider refinancing any higher-interest loans to further optimize your financial strategy.
By investing in diverse markets, prioritizing value investing, and leveraging smart financing, you can substantially reduce the risks of investing in single-family rental properties. Contact your local Real Property Management Excellence office to explore how we can help you craft a profitable investment strategy in Garner and beyond. Contact us online or call us at 919-827-1107 today!
Originally Published on March 26, 2020
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