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. 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 through investing in multiple areas. Investing in properties in different areas is now a lot easier because of new technology and platforms. And, when you have a trusted property management company like Real Property Management Seacoast New Hampshire on your side, you can profitably own rental homes anywhere from Dover to properties that are on the other side of the country. In doing so, you can thin mitigate your market-related risks while also looking 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. However, there are more 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 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 is another strategy to ensure that your investment will offer you stable returns in the years to come.
Secure Favorable Financing
There is plenty you can do to help reduce risk when it comes to financing. To reduce your interest rate and the monthly mortgage payment, you can opt to pay a higher down payment. If you have sufficient cash on hand, this is a good way that you can protect your investment against real estate market fluctuations and keep future costs low.
Another option is finding lenders who offer favorable terms or more creative financing options. These creative financing solutions usually result in lower interest rates, thus higher 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 think about refinancing higher-interest loans.
Here are the ways you can greatly reduce many of the risks that accompany investing in single-family rental properties: investing in diverse markets, keeping an eye toward value, and maximizing innovative financing options.
And once you’ve secured a property or two or three, get a trusted property management team on your side. To learn more, call 603-343-2202 to speak with a Dover property manager today.
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