All investment methods carry risk, including real estate. It is crucial for any aspiring investor to understand that. You’ll need to know your risk tolerance before you get started, or you could find that rather than growing your wealth, your investments drain it, instead. With that being said, there are quite a few ways that you can reduce risk in real estate investments, and we’ll touch on four of the options available you might not be aware of.
Insure Your Investment
Insurance is everywhere today, and can be purchased for everything from your car to your pet’s life. If you’re concerned that your real estate investment might head south, there is insurance that you can buy to safeguard your wealth. However, understand that it can be expensive. In fact, there are quite a few different forms of insurance depending on your investment method.
For example, if you flip homes, then you can invest in builder’s risk insurance. If you are worried about how you’ll make payments if your renter skips out, there’s loss of income insurance. There’s actually a form of insurance for just about every threat you might experience. It’s definitely worth looking into.
Due Diligence in Marketing
Did you know that the right amount of marketing and outreach can help reduce your risks when investing in real estate? Yes, it’s true. Think about it – if you’re running into risk, it’s because you don’t have a renter, or because the house you bought to flip hasn’t sold yet. Marketing gets the word out about your property to your intended audience. The more you market and get the word out to the wider area, the more people you’ll reach.
Obviously, the larger the pool of potential buyers or renters, the lower your risk of not having someone move in or take the home off your hands. However, you can bet that if you don’t market at all, you’ll end up with a significant loss. You don’t even have to do the marketing yourself. If you’ve partnered with a property management firm, they can help spread the word. Be proactive about handling your risk, and you’ll find that you face less than you had anticipated.
Keep Your Residents Happy
Whether we’re talking about a single-family home as a rental or a multi-family property, you need to ensure that your residents are happy and well taken care of. What does this mean for a property investor? Simply put, you need to be able to anticipate what your tenants will need, and then supply it before they can look for it elsewhere. You might consider low-flow fixtures to save on utility bills, high-efficiency HVAC systems to reduce electric bills, or something completely different.
You also need to be proactive about maintenance, upkeep and heading off potential problems. If you let something slide for too long, you can bet that your tenants are going to walk away, leaving you with an untenanted property and a loss of income. If nothing else, come right out and ask your tenants what needs to be improved, or what they would like to see happen around the property.
Property Management Matters
We touched on property management a little bit ago, but it bears mentioning once more. A quality property management company can do a great deal to reduce your risk with real estate investment. A proactive firm will help ensure that you have tenants as often as possible, going to great lengths to market the property when one tenant leaves and vetting potential new tenants to ensure the safety of your property and reduce the likelihood that they’ll leave before the rental agreement or lease is up. They can also provide you with important warnings that things are not right with the property, if the tenant is causing damage, or if there’s another issue that needs to be handled quickly.
With these four options combined with the more conventional risk reduction methods, you should be able to ensure smooth sailing for your real estate investing needs.