The world of real estate investing can be exciting, but it can also be intimidating, especially to a first-time investor. How do you maximize your reward while minimizing risk in real estate investments?
Here are five important tips to help you avoid common pitfalls and to help you thrive in your real estate investments.
The 5 Keys to Minimizing Risk in Real Estate Investments
1. Be Knowledgeable About the Location
It’s not just a tired old saying; location really is everything. If your goal is minimizing risk in real estate investments, location can make or break you. The location of your property will determine the rate at which your asset will appreciate, how easy it will be for you to sell it, and whether it will be a highly sought-after rental property should you choose to use it to earn passive income.
Whether you’re purchasing a property in your home city or investing in multiple cities, make sure you know the area well or are working with a real estate investment company that does. Even if the property itself is a gem, factors such as crime rates, property taxes, and its proximity to good schools, shopping, and restaurants can affect its overall value.
2. Rental Properties Can Pay for Themselves
When it comes to minimizing risk in real estate investments, one of the fastest ways to see a return on your investment is to rent out your property. This puts you in the position of having to manage your property — search out a tenant, collect monthly rent payments, and take care of any repairs or complaints that may arise.
If you’ve already got a job or if your plan was to be retired and truly earn passive income, becoming a DIY landlord may not be what you had in mind. This is where a property management company is crucial. They can handle everything from finding tenants and managing payments to dealing with maintenance issues. All you have to do is collect a payment each month.
3. Think Like a Tenant
Even if you’ve invested in a decent property in a nice neighborhood, that may not be enough to attract good-quality renters. There’s nothing more painful to your wallet than having a rental property sitting empty. To make the property successful on the rental market, you’ve got to view it through the eyes of a potential tenant. Is the property somewhere you’d like to live? Make any necessary repairs, upgrade appliances, provide attractive landscaping, and give the property a fresh coat of paint. These kinds of updates will not only help bring in tenants; it will fetch a higher rental price.
4. Go Turnkey
While the idea of purchasing a run-down property, remodeling it into a winner, and selling it at a profit sounds easy, the reality is quite different. Those fixer-uppers often come with hidden problems that aren’t apparent until you dig in and start doing repair work. In addition to this, closing costs and other expenses can really impact your bottom line.
To avoid surprises and unexpected costs, consider purchasing a turnkey investment property that’s ready to rent and is producing cash-flow from day one. You’ll know what you’re getting from the start, will avoid any DIY nightmares, and can start generating rental income right away.
5. Work with a Real Estate Investment Firm
From finding the perfect location to narrowing your choice down to the perfect turnkey property, your job will be much easier if you turn to professionals to guide you along in the process. A reputable and experienced real estate investment firm will be familiar with the market in specific areas and can present you with options that work for your specific goals and current finances. They will also help steer you through the often-lengthy transaction process.
Doing your homework and understanding the market, location, and the expectations of potential tenants is a large part of minimizing risk in real estate investments. The other piece of the puzzle is bringing in the right people to help move your investment portfolio in the right direction.