Protecting Your Real Estate Investment for Long-Term Profitability – Three Main Strategies

Investing in real estate can pave the path to significant long-term wealth. A key component of this success lies in protecting your real estate investment, which is essential for maintaining profitability. There are proven strategies for keeping an investment property secure that I’ll share with you so you can ensure you’re on the path to maintaining a high ROI as you build your rental portfolio.

Protecting Your Real Estate Investment Protects Your ROI

There are certain steps I take to keep my investment properties safeguarded from various types of risks. I make sure that all my bases are covered because all it takes is one mishap and it can cost an investor thousands of dollars, which can cut into their profit margin. Mitigating risks from the start is essential, and this not only includes protecting your rental, but also your tenant, as well as others who might step foot onto your property.

1. Hire a Property Manager to Watch Over and Protect Your Investment

I know from personal experience that property management companies offer distinct financial advantages to real estate investors. They take on the day-to-day responsibilities that come with managing a property, and ensure the properties are meticulously maintained, thereby preventing them from decreasing in value and keeping them in great shape for current and potential renters. From handling emergency repairs at odd hours to conducting regular maintenance checks, professional property managers prevent costly issues from arising, which can significantly keep costs down. This proactive approach not only maintains a property’s appeal but also allows for regular rent increases, contributing to a higher return on investment.

Employing a seasoned property management firm can significantly reduce vacancy rates, ensuring a consistent and lucrative cash flow. Additionally, experienced property managers employ effective marketing strategies and have an efficient tenant screening process in place, which leads to quickly filling vacancies with reliable tenants. This minimizes rental income loss and maintains a steady cash inflow for the investor.

They are capable of keeping tenants in place by prioritizing tenant satisfaction through quick issue resolution and property upkeep, and this results in a stable and increased income for the property owner. Also, by keeping on top of housing laws and employing good tenant screening processes, property managers mitigate legal risks and potential financial losses, which can further safeguard the investor’s ROI. The bottom line is that leveraging the expertise of a property management company aligns with an investor’s financial goals, maximizing profits while minimizing the hassle and risks associated with managing a property. I use a property manager for all my rentals. Even if the property is only five miles from my place of residence, I would still employ a professional manager to care for my rental.

To read up on this topic, head over to my latest post – Financial Advantages of Using a Property Management Company.

2. Safeguard Your Profits by Incorporating Landlord Insurance

Landlord insurance is created for those who own rental properties, offering a safety net against various risks making it a essential component for protecting your real estate investment. It generally includes two key forms of coverage: property protection and liability insurance. These protections are crafted to safeguard landlords against potential financial setbacks.

The property protection aspect of the insurance primarily concentrates on safeguarding the physical components of the property you rent out. This includes not only the building itself but also any equipment you have on the premises for upkeep purposes. The coverage typically includes:

• Dwelling Coverage: This covers repairs to your rental if damages were to occur from incidents like fires, storms, and the like.
• Separate Structures: This policy feature contributes to the repair costs of any separate buildings on your rental land, such as garages or fences, that sustain damage from an insured disaster.
• Personal Property Used in Maintenance: If you keep maintenance tools, like a lawnmower or a snow blower, at the property for upkeep, landlord insurance may cover these items if they’re damaged. However, personal belongings not used for property maintenance, like a bicycle, typically fall outside the policy’s scope of coverage.

The liability coverage within a landlord insurance policy covers medical expenses, as well as legal fees in the event that an injury occurs on your property and you’re deemed liable. For example, if someone is injured from a fall on your property’s stairs, and it’s determined you neglected upkeep of the stairs or railing, you might be accountable for the tenant’s medical and legal expenses. In such scenarios, your landlord liability insurance can help in covering these costs, up to the limits of your policy.

Now, imagine not having insurance and you’re responsible for paying any of the above items out of your own pocket. This would significantly reduce your ROI.

2. Never Put the Property in Your Own Name – Form an Entity Such as an LLC

A critical step to avoid when purchasing a rental property is holding it in your own name. Doing so exposes you to potential legal and financial risks. For example, if an injury occurred on your property leading to a substantial lawsuit beyond what your insurance will pay, your personal assets could be at risk. To avoid a situation such as this, it’s best to establish a Limited Liability Company for owning the property. This strategy limits your personal liability and keeps your profits shielded.

In addition to this, holding the rental property within an LLC opens up opportunities for substantial tax benefits. If you’d like to form an LLC when purchasing your next property, or just have some questions on tax deductions related to investment properties, resources like Scott Smith from Royal Legal Solutions and Garret Sutton from Corporate Direct are highly recommended.

Additional Strategies for Protecting Your Real Estate Investment to Keep Profits High

• Research the Housing Market: Mitigate risk from the beginning by researching the housing market before buying. This strategy can ensure you’re getting set up in a lucrative, growing market where a consistently high ROI is almost guaranteed. See our post on the topic – Why Location Matters in Real Estate Investing. Also, for an example of a location that performs well, dive into this article – Lubbock Recognized as Recession-Proof City and Maintained a Strong Rental Market Throughout Pandemic.
• Secure a Fixed-Rate Loan: Obtain a loan that has a fixed interest rate to protect your profits against the volatile economy where interest rates can surge. This will prevent your mortgage payments from unexpectedly rising, cutting into your ROI.
• Invest in Landlord-Friendly States: Investing in rental properties in landlord-friendly states can allow you to avoid costly situations such as tenants living rent-free due to difficult eviction processes. States that favor landlords, like Texas, offer laws that can protect your investment, saving you time and money in potential legal fees and lost rent. Ultimately, investing in landlord-friendly states ensures that your rights are prioritized, safeguarding your investment and profits.

Power Resources for Real Estate Investors

If securing profits, achieving a high ROI, and building wealth are your top priorities, then you’ll want to check out the resources below – they’ll set you on the path to a successful rental real estate journey.

• The Financial Freedom Academy
• Freedom Number Cheat Sheet
• 90-Day Financial Empowerment Bootcamp
• Morris Invest & SDIRA Program Overview

Ensure Long-Term Real Estate Success by Safeguarding Your Investments

When you’re protecting your real estate investment, your better shielded from liability, damages, loss of income, and loss of property value. Although you may have to pay a property manager, purchase an insurance policy, or pay a yearly fee to keep an LLC up and running, it’s well worth the cost because it can potentially save you thousands of dollars if you didn’t have these safeguards in place.

If you’d like to get set up with a cash flowing rental property that has protections in place from the start, contact the team at Morris Invest. They can speak with you about our new construction properties, how they’re set up in a highly profitable location that sports a booming economy, and can provide you with details on the fact that all our properties have a seasoned property manager assigned, as well as a vetted tenant. We can also help you incorporate so you can purchase your rental property within an LLC.

We’ve been working within the rental real estate industry for years and know all the best strategies to maximize profits, so don’t hesitate to reach out if you’d like to learn more about investing in a property that will perform well.

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