When I buy rental properties in a profitable location, one that’s proven to keep my investments and my wealth protected, I still go ahead and exercise due diligence by setting up proven safeguards. You see, there are certain risk mitigation strategies for real estate investors that, when put in place, add a layer of protection that will keep your portfolio and your money safeguarded. If you’re unfamiliar with the steps you can take to minimize risk, then you’ll want to dive into this article that covers the essentials.
Risk Mitigation Techniques for Real Estate Investors
Even in the most stable markets, seasoned investors recognize the importance of implementing protective measures from the outset. There are many strategies you can use to minimize risk exposure, and I’ll outline those that provide the most protection. With that said, let’s begin so you can get those safeguards in place sooner rather than later.
Research the Housing Market Extensively to Evaluate Risk
First and foremost, before moving forward with an investment purchase, it’s essential to conduct thorough due diligence when it comes to the location you’re considering. This is a step that every seasoned investor takes because they know a location can make or break their investment. This is the case because the area could either be riddled with risk factors or filled with protective barriers that allow a property to flourish financially.
Morris Invest spends years analyzing a market, and we won’t build in an area until all checklist items are confirmed. Why? Because it’s just not worth setting up camp in a location if we’re not 100% sure it will allow a rental property to perform well over the years.
To properly evaluate an area, it’s critical to look at factors such as the location’s economy to ensure it’s thriving and on an upward trend. Additionally, you’ll want to invest in locations that have more than one large employer, a diversity of jobs, and rising wages, which can typically be found in cities that sport large hospitals, colleges, and Fortune 500 companies. This type of setup ensures a high demand for rentals because the location’s job market will keep people in the area, which can also create a low vacancy rate.
If all these items check out, then you’re off to a great start when it comes to investing in a low-risk area. To see an example of a city that meets all the requirements, head over to our article titled – Why Location Matters in Real Estate Investing – Tapping into Profitable Rental Markets.
Anchor Your Investments Against Market Volatility with a Fixed Rate Loan
Real estate investors should know the importance of securing favorable financing terms, and this includes opting for fixed-rate mortgage loans. Why? Because it can protect against mortgage rate volatility.
A perfect example of this would be today’s mortgage rates – they’re certainly not what they used to be. However, the investors who locked in rates years ago by securing a fixed-rate loan are protected financially because this successfully kept their loan payments at bay. In contrast, investors with variable-rate loans are paying higher mortgage payments due to the surge in mortgage rates.
Protect Your Cash Flow with Multiple Streams of Income
By owning several investment properties, you create multiple streams of income that can collectively add a layer of financial security. This approach protects your cash flow and offers a cushion during economic downturns when a single stream might not be enough, or worse yet, if that one source of income were pulled out from under you.
Investing in multiple rental properties spreads out the risk associated with real estate investments. For example, if one property happens to face tenancy issues or unexpected maintenance, the other properties can continue to bring in steady rent. Be sure to dive into our post on a related topic for some inspiration – Investing in Multiple Properties Can Create a Hedge Against Inflation and Preserve Your Wealth.
Employ Proactive Property Managers to Keep Watch Over Your Rentals
Effective property management can significantly mitigate risks associated with tenant turnover, property maintenance, and legal compliance. This makes it well worth the money spent to employ one, although the cost is very reasonable.
Securing a reliable property management company may seem like a minor element in the grand scheme of the investment, yet its significance is crucial for out-of-state investors. The right property manager acts as an invaluable ally for landlords; they work behind the scenes, expertly managing everything – from tenant screening to ensuring timely rent collection, as well as overseeing routine maintenance tasks and more.
Check out the following video to see why using a property manager is essential:
Even if the investor does live nearby, a property manager is better suited to take care of the daily activities of a rental property. For instance, they can handle those middle-of-the-night emergency calls that take place when a heater breaks or a water pipe bursts.
Having a property management company care for your investment is a no-brainer when it comes to keeping risk factors at bay. If you’re on the fence and need more convincing, then be sure to read about the financial advantages of using a property manager.
Setup a Legal Structure and Have Insurance Coverage in Place
Establishing a solid legal structure and securing insurance coverage is essential to minimizing risk with your rental property. This can include forming a Limited Liability Company (LLC) that can offer personal liability protection by legally separating your personal assets from those associated with your rental property.
Comprehensive landlord insurance is also needed to push risk factors down. This type of insurance covers property damage, tenant liability claims, income loss, and more. Additionally, requiring your tenants to have renter’s insurance adds another layer of security to the mix.
Avoid a Costly Eviction Scenario by Investing in a Landlord-Friendly State
Investing in real estate in a landlord-friendly state can significantly shield your investments and finances through state policies that favor rental property owners. These states often have laws that can streamline court processes that may come up, as well as impose fewer rent control regulations. This can certainly help maintain a steady income flow and minimize potential losses.
Investing in a landlord-friendly state is especially important if you want protection against a costly eviction. For those who own a rental property in California and have gone through the eviction process, you know all too well what can happen – it can cost you thousands of dollars when the state favors the renter. In a case like this, during the eviction process, the tenant can sit rent-free for months in your property as you pay the mortgage out of your own pocket. The good news is that you can avoid all this by simply investing in a landlord-friendly state.
Invest with Confidence by Adding Risk Mitigation Strategies to Your Plan
For those who put these risk mitigation strategies in place, you’ll be able to safeguard your properties, ensure consistent cash flow, and ultimately reach your goal of financial independence. Our mission at Morris Invest is to guide our clients every step of the way, ensuring that they’re not only investing in a profitable market, but doing so with confidence and security.
Power Resources for Real Estate Investors
Before we wrap things up, you’ll want to take note of the following resources that were designed to set you on the path to financial intelligence and independence.
- The Financial Freedom Academy
- Freedom Number Cheat Sheet
- 90-Day Financial Empowerment Bootcamp
- Morris Invest & SDIRA Program Overview
We Can Set You Up with a Cash Flowing Rental Property
Feel free to reach out to us if you’re interested in learning about our investment properties. We’re currently building in a lucrative, thriving market, an area that stood strong during the height of the pandemic – which says a lot. This city was not only able to stand up to the economic hardships of the pandemic, but it also came out on top while other cities faltered. You can read about this in our latest article – Lubbock Recognized as Recession-Proof City and Maintained a Strong Rental Market Throughout the Pandemic.
Contact the team over at Morris Invest if you have any questions or would like to learn more about the areas we invest in. We can help you get set up with a profitable new construction rental property, and take care of all the steps needed to make it happen.
Before you go, take a moment to watch the following video that covers real estate investing risks and tips on avoiding them.
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