Investing in single-family rental properties can be an inherently risky business. Although there are ample opportunities to make a profit, there are also several things that could go wrong. The good news is that there are several good ways to reduce your risk. These will also reduce your chances of 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 not confining your investments to a single area. Today, it’s a lot easier to invest in properties in multiple areas because of new technologies and platforms. And, when you include a trusted property management company like Real Property Management Greater Milwaukee on your team, you can profitably own rental homes anywhere from Muskego to properties that are hundreds or even thousands of miles away. This way, you can explore investment properties in some of the nation’s hottest markets while also thinning out your market-related risks.
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 though. 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.
Another option would be to find a property that would let you easily raise the property’s value or tenant appeal (or both) with inexpensive improvements or other services. Finally, another way to ensure that your investment will continue to offer you stable returns, you have to keep a close eye on future developments and buy-in areas before housing prices start to climb.
Secure Favorable Financing
There is plenty you can do to help reduce risk when it comes to financing. A significant reduction of your interest rate and monthly mortgage payment is possible when you pay a higher down payment. If you have cash on hand, this is a good way to keep future costs low and protect your investment from real estate market fluctuations.
You can also find lenders with favorable term offers or 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 often 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.
As long as you invest in diverse markets, but with an eye toward value, and work out creative financing options, you can greatly reduce many of the risks usually associated with investing in single-family rental properties.
And as soon as you’ve secured a property or two or three, look for a quality property management team to assist you. To learn more, call 262-309-6961 to speak with a Muskego property manager today.
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