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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. 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 as well as avoid having a less-than-profitable rental property. You can safely corral your investments from some of the hidden dangers of rental property investing and reduce your risk.  You can do this by knowing the top three ways to minimize the risk in your real estate portfolio.

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. With today’s new technologies and platforms, you can easily invest in properties almost anywhere you want. And, when you have a trusted property management company like Real Property Management Executives Greater Atlanta on your side, you can profitably own rental homes anywhere from Lawrenceville to properties that are on the other side of the country. In doing this, you can thin out your market-related risks while also exploring 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 other ways to think about value, too. You can purchase a rental house with rental rates below the present market rate.  This will allow you to raise rents and protect 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

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. Given that you have enough cash on hand, this can keep future costs low and protect your investment from real estate market fluctuations.

One more option is by finding lenders with favorable terms as well as creative financing options. Exploring these creative financing solutions could give you lower interest rates and improve your 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 consider if it is ideal to refinance higher-interest loans or not.

In Conclusion

When you invest in diverse markets, with an eye toward value and explore other financing options, you can reduce many of the risks associated with 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 678-504-8580 to speak with a Lawrenceville 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.