While real estate investments stand to make you quite a bit of money, they’re far from risk-free. The larger the investment, the more you stand to lose – especially if you have little to no experience in real estate. Although there’s no such thing as an investment that’s free of risks, there are numerous ways first-time real estate investors can minimize risks and increase their chances of generating healthy returns.
Anyone looking to keep risks to the barest of minimums when investing in real estate would do well to consider the following measures.
Utilize Real Estate Crowdfunding
There’s no question that investment properties represent substantial purchases. The nicer the property and the more desirable the location, the more investors can expect to spend. Although you stand to profit handsomely from smart real estate investments, it’s easy to see why you might be hesitant to put forth sizable amounts of capital.
Anyone looking for a way to avoid taking on the financial burden of an investment property all by themselves should consider real estate crowdfunding. As the name implies, this method entails pooling your resources with other investors and sharing equally in the profits. As an added layer of security, crowdfunding arrangements often involve working with individuals who specialize in finding low-risk properties in desirable locales.
If this strikes you as an appealing prospect, you may also want to consider working with a real estate investment trust, also known as an REIT. If you’re currently asking yourself, “What is an REIT?,” be advised that it refers to a company that owns and manages real estate. Both fledgling investors and experienced pros looking to invest in rental properties and/or commercial real estate can benefit from finding a good REIT.
Of course, while you have less to lose in crowdfunding situations, you also have less to gain. So, if you want any profits an investment property generates all to yourself, real estate crowdfunding may not be a good fit.
Prioritize Location Research
Location research should be a priority for every real estate investor. As any experienced investor will tell you, location is a crucial factor in any real estate purchase. The more desirable the location, the more you’ll be able to make from selling or renting a property. So, before committing to purchase an investment property, make a point of researching its location.
To form a clear picture of how much demand exists within an area, take a look at the population size, rates of growth, local economy, property values and rent prices. Once you have a good idea of how in-demand an area is, you’ll be able to make a suitable offer on a property – or walk away and set your sights on properties in more profitable locales.
Make Sure You’re Aware of Outstanding Issues
You should never purchase an investment property unless you have an accurate assessment of its condition. After all, looks can be deceiving, and even properties that appear to be flawlessly maintained may be hiding outstanding issues. To ensure that you’re made aware of any problems, insist on having all prospective purchases inspected by certified professionals. In addition to providing you with a solid understanding of a property’s overall condition, a formal inspection may be a prerequisite for having the property insured. So, even if the seller gives you their personal assurance that a property is in perfect shape, insist on having an inspection take place, and make it clear that you won’t budge on this point.
The results of this inspection will also help you determine the size of your offer. If the inspection reveals the presence of serious issues, you should take the cost of repairing these issues into account when working out an offer. Furthermore, depending on how many problems are present and how pressing said problems are, you may ultimately deem the property a lemon and decide to walk away.
It’s no stretch of the imagination to claim that real estate is a high-risk, high-reward field of investment. Although favorable investments can lead to massive financial rewards, unwise investments may place a tremendous strain on your finances and leave them depleted. However, while you’re unlikely to come across a risk-free real estate investment, there are numerous measures you can take to minimize your chances of making poor investments.
