Bitcoin is a bubble that seems on the verge of bursting. Stocks and shares fluctuate at the whim of an unstable business market. See also, precious metals. The truth, unglamorous as it may be is that real estate is still one of the safest places for neophyte investors to put their money. Is real estate risk free? Absolutely not, but then we’d struggle to think of an investment that is. If you want risk free, saving is absolutely the way forward for you, but don’t expect to reap huge dividends unless you’re saving seven figure amounts.
Real estate, on the face of it, is just like any other form of investment. The trick is to buy for as little as you can and sell for as much as you can. Whether you’re interested in the prospect of flipping a property to make some (relatively) quick money, or earning some passive income by letting the property out to a private tenant, there are ways in which you can increase your chances of turning a profit while mitigating risk. The investment blog at https://highreturnrealestate.com/real-estate-investment-blog/ has some great advice on generating as much income as possible from real estate but for now we’re going to focus primarily on risk aversion. Go into your investment with any (or all) of the following in mind and you’ll find yourself sleeping easier at night…
Don’t over leverage!
If everyone had borne this in mind the collapse of 2006-2008 never would have happened. If you’ve seen or read The Big Short, you’ll know just how over leveraged the market was in the mid noughties. Leveraging refers to the amount of debt incurred in financing an asset. Of course, not everyone can be expected to invest in real estate without a mortgage, but even if you’re able to secure substantial financing on your portfolio, the savvy investor knows his or her limits. The market collapsed because investors were doubling and tripling down on their debts as the flipped multiple properties concurrently. These people were the hardest hit by the collapse, as they found themselves unable to repay their loans as they were unable to find buyers for their properties. The key to mitigating risk lies in keeping your debts manageable.
Look to the future
Gentrification of various urban and suburban boroughs has seen many an investor rubbing their hands together with glee as their property’s value sky rockets. Identifying the next ‘up and coming’ area isn’t easy, nor is it an exact science, but it can’t hurt to do a little homework when choosing the right place to invest, before the area gets too ‘hot’. Look into government urban renewal schemes and renovations. Keep an eye on where the young creative types are moving to (it worked for investors in SoHo and Brooklyn), and keep an eye on the amenities to cater to them. If a trendy restaurant, coffee shop or art gallery opens up in an area you have your eyes on, this is a great indicator that it’s time to pull the trigger. If all of this seems like too much hard work, looking for cheaper areas in close proximity to unaffordably hip areas is also a pretty decent indicator of a good investment.
Up your down payment
The more you have to put into a down payment, the more favorable your mortgage is likely to be, meaning you’ll be paying less in interest rates and gaining more equity. High debt, over leveraged financing can lead to an investment backfiring on you, should the markets take a downward turn. Increasing your deposit insulates you from some of this risk, although you must also be careful not to tie up too much of your liquidity in a property to the extent that it leads to opportunity loss.
Look for below market rents
A wise investor knows all the variables before committing to an investment, and it’s pretty much a given that if you have your eye on an area, you’ll be cognisant of what the average market rate is on rental properties of the type in which you’re hoping to invest. If you can find an area with a significant number of rental properties that are currently below market value, you’re staring at an opportunity for better cash flow (which is always a good sign for an investor).
In these instances, very little is required to bump rental prices up to market rates. A slight upgrade or cosmetic overhaul is usually enough to secure a sizeable return on your investment.
Of course, no investment is entirely without risk, but real estate is one of the few areas in which risk is quantifiably easy to avoid.