Investing in single-family rental properties could be an inherently risky business. Conceding that there are ample opportunities to bring about a suitable profit, there are also numerous things that would most likely fail. The good news is that there are multiple good ways to reduce your risk and lessen the prospects of ending up with a less-than-profitable rental property. By realizing and understanding well the top three ways to minimize the risk in your real estate portfolio, you could more carefully guide your investments away from several of the hidden threats of rental property investing to reduce your risk.
Invest in Different Locations
One of the best ways to protect your real estate portfolio from downturns in any one market is to grow and expand outside of a single location. New technologies and platforms have made it easier than ever to invest in properties close to anywhere in the country. And, supposing you involve a trusted property management company, such as Real Property Management Wasatch, you can profitably maintain rental homes anywhere from Magna to properties that are hundreds or even thousands of miles away. In this fashion, you can hopefully spread out the market-related risks and get investment properties in some of the nation’s hottest markets all at the same time.
An additional good approach 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 several ways to think about value. Getting a rental house with rental rates less than the present market-rate offers an option to raise rents and preserve your cash flows.
Another good alternative is to go after a property that, with particularly inexpensive improvements or added services, will advance the property’s value or tenant appeal (or both). Lastly, keeping a close eye on future developments and buying in areas before housing prices start to climb would be an additional means to be assured that your investment can offer you stable returns over the years.
Secure Favorable Financing
As for financing, there is plenty you could do to help reduce risk. Paying out a higher down payment can oftentimes highly reduce your interest rate and monthly mortgage payment. Supposing you have the cash on hand, this is an effective manner to keep future costs low and protect your investment when up against real estate market fluctuations.
Another productive recourse is to find lenders who will give you favorable terms or more creative financing options. Arranging for creative financing solutions can commonly result in lower interest rates and, thus, increased 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 commonly present with a lower initial interest rate and thus improved cash flow for you. Also, at any moment interest rates drop, consider whether it is the best time to refinance higher-interest loans.
By investing in diverse markets, consistently buying with an eye toward value, and finding ways to make your financing work for you, you can seriously reduce many of the risks that are associated with investing in single-family rental properties.
And if you’ve secured a property or two or three, you’ll need to make certain you have a great property management team on your side. To find out more, call 801-889-1517 to converse with a Magna property manager today.
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