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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. Although there are ample opportunities to make a profit, there are also some things that 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. 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 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 California Coast on your team, you can profitably own rental homes anywhere from Mar Vista 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.

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 though. 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, 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

When it comes to financing, there is a plethora of ways to reduce risk. One way is by paying a higher down payment.  This can reduce your interest rate and 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.

Another option is to find lenders who can offer favorable terms as well as 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 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, but 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 310-535-2150 to speak with a Mar Vista 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.