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3 Ways to Minimize Risk in a Real Estate Portfolio

Coin Graphs with Model HomesInvesting in single-family rental properties can be an inherently risky business. Since there are ample opportunities to make a very good profit, a lot of things could go wrong. The good news is that there are plenty of good ways to reduce your risk.  These will also reduce your chances of ending up with a less-than-profitable rental property. If you know the top three ways of minimizing the risk in your real estate portfolio, then you can confidently keep your investments away from some of the 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. Investing in properties in different areas is now a lot easier because of new technologies and platforms. And, when you include a trusted property management company like Real Property Management TradeWinds on your team, you can profitably own rental homes anywhere from Palm Harbor to properties that are hundreds or even thousands of miles away. 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.

Buy Value

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. 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. 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

When it comes to financing, there is a plethora of ways to reduce risk. 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.

Another option is to find lenders who can offer favorable terms as well as 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 generally come with a lower initial interest rate, which means improved cash flow for you. Finally, when interest rates drop, refinancing higher-interest loans becomes an opportunity for you.

In Conclusion

As you invest in diverse markets, with an eye toward value and find a financing option that works, you can markedly reduce many of the risks that come with investing in single-family rental properties.

And as soon as you have secured a property or two or three, you would be smart to make sure you have a reliable property management team on your side. To learn more, call 727-400-4722 to speak with a Palm Harbor property manager today.

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