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 some good ways to reduce your risk and avoid 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 expanding outside of a single area. There are a lot of new technologies and platforms that allow you to easily invest in properties anywhere in the country. And, by having a trusted property management company like Real Property Management Gold with you, you can own and profit from rental homes anywhere from Calvert County to properties that are thousands of miles away. In doing this, you can thin out your market-related risks while also exploring 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 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. You can also purchase a property that you can easily upgrade with inexpensive improvements or by providing add-on services. These features could improve 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 can be another way to make sure your investment will continue to offer you stable returns in the future.
Secure Favorable Financing
Speaking about financing, there are a lot of things you can do to mitigate or reduce risk. When you pay a higher down payment, you markedly reduce your interest rate as well as your monthly mortgage 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.
One more option is by finding lenders with favorable terms as well as 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 contemplate whether to refinance higher-interest loans or not.
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 once you’ve secured a property or two or three, get a trusted property management team on your side. To learn more, call 301-392-2172 to speak with a Calvert County property manager today.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.