Investing in single-family rental properties can be an inherently risky business. While there are ample opportunities to earn a handsome profit, there are a lot of things that could possibly go wrong as well. The good news is that there are many good ways to reduce your risk. These will also reduce your chances of ending up with a less-than-profitable rental property. When you know the top three ways to minimize the risk in your real estate portfolio, you can safely keep your investments away from some of 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 investing in more than one area. Because of new technology and platforms, it has become much easier to invest in properties in almost any location. And, when you include a trusted property management company like Real Property Management Investment Solutions on your team, you can profitably own rental homes anywhere from Kalamazoo to properties that are hundreds or even thousands of miles away. By doing so, you can explore investment properties in some of the nation’s hottest markets while distributing your market-related risks at the same time.
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 also other ways to think about value. When you buy a rental house with rental rates lower than the present market rate, you get an opportunity to raise rents while securing your cash flows.
Another way would be to secure a property that is easy to improve on. You can increase the property’s value or tenant appeal (or both) with inexpensive improvements. Finally, keeping a close eye on future developments and buying in areas before housing prices start to climb can be another way to make sure your investment will continue to offer you stable returns in the future.
Secure Favorable Financing
There are a variety of ways to reduce risk when it comes to financing. If you want to reduce your interest rate and the monthly mortgage payment, you can 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.
You can also find lenders with favorable term offers or creative financing options. Creative financing solutions may bring about lower interest rates as well as 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 often 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.
Through investing in diverse markets, purchasing properties with an eye toward value, and exploring unique financing options, you can further reduce many of the risks that are part and parcel of 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 616-419-4578 to speak with a Kalamazoo property manager today.
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