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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. Even when there are ample opportunities to earn a good profit, there are also many 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. You can protect your investments from some of the hidden dangers of rental property investing and reduce your risk.  You can do this when you know the top three ways of minimizing 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 in multiple areas. There are a lot of new technologies and platforms that allow you to easily invest in properties anywhere in the country. And, when you include a trusted property management company like Real Property Management South Orlando on your team, you can profitably own rental homes anywhere from Kissimmee to properties that are hundreds or even thousands of miles away. By doing this, you can distribute the market-related risks as well as look 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. However, there are more ways to think about value. Purchasing a rental house with rental rates lower than the current market rate allows you to raise rents and protect 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 could be another strategy to ensure that your investment will keep on offering you stable returns in future years.

Secure Favorable Financing

There are a variety of ways to reduce risk when it comes to financing. One way is by paying a higher down payment.  This can reduce your interest rate and 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.

Another option is finding lenders who offer favorable terms or more creative financing options. Explore these creative financing solutions as these usually give lower interest rates and improved cash flow at the same time. 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.

In Conclusion

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 when you’ve secured a property or two or three, make sure you have a reliable property management team on your side. To learn more, call 407-982-2000 to speak with a Kissimmee 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.