How to reduce risk in real estate investing
Real estate investing can be a very profitable business if handled properly. However unless you can take control of several common risks, your business empire can all come crashing down and fail.
This article takes you through how to reduce your risk in real estate investing.
When most people start investing in real estate, they have their goals high in making some big money. This happens quite often, but others also fail because they have not taken certain precautions that are crucial to your success in real estate investing.
The following factors will help you reduce risk and make money in real estate investing.
1) Always buy low
Not many words are needed to stress this. Whenever you buy a house, make sure it has equity. The more equity it has the better.
It does not matter if you are buying on terms or cash – you must buy low. This will cushion you even if the real estate market goes down.
If you have to take a loan, little or no down payment has tempted most people to buy over-priced homes. At the end of the day, you must make sure that you buy the house for less than the market value.
As a real estate investor, you must have equity the day you buy – or make it a no deal.
2) Never expect appreciation
Never rely on future appreciation to make money. The current real estate slump has tough a lot of people that this is a bad bet.
If possible, work on numbers lower than the current market values.
3) Avoid negative cash flow
If you keep cash flow properties, you must make sure that the money it produces pays the mortgage, caters for repairs and leaves you with a healthy cash flow.
4) Buy properties you can profitably improve
When you buy houses that need repairs, you must make sure that you walk away with at least 30% to 40% equity.
In other words, the sweat you put into fixing the property is worth equity. You must calculate the current market value conservatively.
Remember that the market can go down when you need to sell. Remember too that when the time to sell comes, you will not sell at market price in a poor real estate market.
You must give a good discount to sell your properties, and you need to take this into consideration before you buy any rehab properties.
5) Use low interest financing
Whenever possible, you should look for the cheapest financing available to buy your properties. Owner financing is probably the best. The current mortgage market has some of the lowest interest rates in a long time.
6) Do not over-extend yourself
If you take a high loan to value financing, it means you will be making large payments compared to the income it brings. This can expose you to negative cash flow, and less reserves for maintenance and vacancies.
Successful real estate investing dictates that you buy houses at the lowest possible price, spending less time, money and effort. Learn how a good real estate investing website can automate your business and make you a more efficient and successful real estate investor.
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