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Mitigate Risks in Real Estate Investing
Generally speaking, real estate investing can be one of the best ways to make more money and build wealth. With the increasing demand for properties, buying and owning them can be considered a safe investment nowadays. However, just like other forms of investments, purchasing infrastructures comes with some risks that investors like you should watch out for so that you can get the most out of the returns.
If you’re a real estate investor, below are the six ways to mitigate the risks in real estate investing:
1. Use Real Estate Crowdfunding
Whether you believe it or not, you can actually invest in real estate without physically owning properties. This can be done through the process of crowdfunding. It refers to the process of obtaining a pool of real estate investors to generate capital for a real estate project. What’s good about this method is that you can minimize the risks by investing a small amount of money into the equity of a project.
Unlike owning and managing investment properties by yourself, using real estate crowdfunding can help you mitigate the risks while earning passive income. So, to get started with this method, be sure to find the best real estate crowdfunding sites that can help you with your investments without risking a lot of money.
2. Pay Attention to Multifamily Rentals
In most cases, investing in multifamily properties for rentals can be one of the effective ways of reducing the risks associated with real estate investments. When you buy single-family properties, you may not be receiving money for rent when nobody is renting the unit. But, with multifamily properties such as a four-plex, you may still get some rentals even if one unit is empty.
In such a case, you can still ensure cash flow for your real estate investment, even if it’ll take months before you can find the next tenants. As a result, you can mitigate the risks of losing your money in the long run.
3. Be Sure to Calculate Your Potential Income and Expenses
One of the common risks in real estate investing is dealing with negative cash flow. This means your expenses, including mortgage payments and taxes, are higher than what you earn from your investment properties.
To reduce this risk, it can be a good idea to accurately compute your potential income and expenses before purchasing a property. Be sure to account for all the estimated expenses and, more importantly, check whether the location of the rental property can yield positive cash flow. By doing all these things, you can rest knowing that your investment is safe from the risk of negative cash flow.
4. Perform Tenant Screening to Avoid Bad Tenants
In some cases, the risk associated with real estate investing isn’t always about the issue of profitability. There are instances wherein the problem is caused by the bad tenants. Instead of keeping positive cash flow for your investment properties, you end up spending more money due to the problems and damages caused by the bad tenants.
Therefore, to mitigate this risk, conducting a thorough tenant screening before allowing them to rent your property can be an excellent option. With this screening method, you can have an opportunity to check the background of the tenants and make sure they’ll follow all the terms and conditions stipulated in the lease agreement.
5. Evaluate The State of the Investment Property
When it comes to real estate investing, there are times you may have brought an investment property with some hidden structural problems. Unfortunately, dealing with some problems can cost you more money in the long run due to the expensive repair and maintenance costs that you need to pay. When this happens, you may be unable to get high returns on your real estate investment.
To reduce this risk, it’s best if you evaluate the state of the investment property and obtain a home appraisal before investing. Make sure to work with professionals who know exactly how to spot hidden structural problems that need to be fixed as soon as possible. That way, you can get the most out of an investment property’s returns by avoiding hefty maintenance and repair expenses.
6. Utilize The Buy and Hold Strategy
If you’re looking for a way to minimize the risks associated with real estate investing, then you may consider using the buy and hold strategy. It refers to a method of buying a property and planning to hold it for a long time. It’s less risky than buying and selling properties since you’re not dependent on the market trends.
Also, the good thing about using this strategy is that you can wait for the investment property to appreciate while continuously receiving a healthy ROI (return on investment). Doing so can help protect yourself from the risks that come with investing in real estate.
The Bottom Line
Indeed, there are many reasons that real estate is a good investment right now. For instance, it can be your chance to earn a lot of money and improve your financial health. But, due to its nature, there are many risks that you need to be aware of, so you can protect your investment from losses.
Luckily, by following these ways, you can mitigate any risks that may come your way. Remember, the better you protect yourself from the risks, the more you can improve the odds of obtaining long-term returns.