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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. 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 many good ways to reduce your risk and avoid ending up with a less-than-profitable rental property. There are ways to minimize the risk in your real estate portfolio. When you know the top three ways to do this, you can protect your investments from 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 through investing in multiple areas. Because of new technologies and platforms, it has become much easier to invest in properties almost anywhere. And, by having a trusted property management company like Real Property Management Baton Rouge with you, you can own and profit from rental homes anywhere from Gonzales to properties that are thousands of miles away. By doing so, you can explore investment properties in some of the nation’s hottest markets while distributing your market-related risks at the same time.

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 also other ways to think about value. If you want to raise rents and secure your cash flows, you can buy a rental house with rental rates below the current market rates.

One more option is to explore a property that can easily be upgraded with just a few inexpensive improvements or additional services.  These can 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 could be another way to secure your investment, making sure it offers you stable returns for many more years.

Secure Favorable Financing

Talking about financing, there are several ways you can reduce risk. To reduce your interest rate and the monthly mortgage payment, you can opt to pay a higher down payment. If you have enough cash on hand, this is a very good way of keeping future costs low and protecting your investment against real estate market fluctuations.

Finding lenders who offer favorable terms or creative financial options is also a good strategy. Creative financing solutions can lead to lower interest rates and improved 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 usually come with a lower initial interest rate, which means improved cash flow for you. Finally, when interest rates drop, you can think about refinancing higher-interest loans.

In Conclusion

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 225-389-6860 to speak with a Gonzales 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.