Real Estate Investing: Smart Ways to Reduce Your Risks

The stock market is inherently risky; this is why there isn’t much by way of insurance for losses suffered in the stock market. Real estate, on the other hand, is safer, which is the reason people are able to ensure their investments in property against floods, fire and other threats. You can even buy insurance against rental revenue loss from property, should you have trouble keeping rental income inflow steady. While real estate investments are inherently safer, though, investors would like to see them become safer still. If this is how you prefer your real estate investments, here’s what you can do.

 

Approach real estate investment as a business

While most people starting out in real estate investment tend to be nervous about making the right choices, they also tend to be curiously at ease. Not only do they not go in with a business plan, they tend to make their moves based on vague assumptions, ineffective research and little professional input. Investors wouldn’t accept such risk if they were to approach real estate as they would a business — with a business plan, revenue estimates, professional advice and risk mitigation. A real estate investment plan simply cannot be considered safe unless it comes with such planning.

 

Run your rental business in a professional manner

Running rental units in a competent manner, keeping them filled and staying within the law while keeping costs within control can be a complex business. It requires planning, the input of knowledgeable consultants and professional standards of practice. Not only does this type of approach ensure minimal chance of litigation, it ensures the greatest possible chance of regular, uninterrupted income.

For instance, many real estate investments dependent upon rental income obtain their tenants not through tapping the talents of professional lettings agents but through advertisements on the Internet. Few businesses invest in analysis to determine whether lettings agents guarantee continuous occupancy, and if they are worth their cost.

In many cases, they actually are fully worth more than the commissions that the charge.

 

Analyze historical rent performance to arrive at a reasonable purchase price

Oddly enough, many investors do no independent analysis to determine the kind of rent revenue that a piece of property might be capable of generating, going, instead, on numbers thrown together by the seller.

According to RABennett.co.uk, the well-known real estate agency, though, the best way to ensure an accurate picture of potential rent earnings on a piece of property is to collect historical performance data either by yourself or through an agent. It isn’t possible to determine the fair purchase price of property with inadequate knowledge of the earnings potential.

 

Try some of the more advanced, and yet low-risk methods of real estate investment

REITs: A well-known form of protected real estate investment, REITs (real estate investment trusts) allow small-time investors to contribute money to an investment pot that a group of managers use to invest in large real estate projects. In other words, they are like mutual funds, but for property.

Lease options: With this method, you get to sign up to buy property even when you have no money to make payments with. Lease options are a kind of speculative buying agreement, under which you get several weeks after signing to arrange for financing.

Subject-to purchases: Under this method of acquiring property through mortgage, you don’t directly apply to a mortgage lender for a mortgage. Instead, you simply find a seller who already has a mortgage, and take over responsibility to pay make his payments.  Subject-to purchases are a quick, hassle-free way to acquire property under mortgage.

 

Look for chances of infrastructure development

A property that is within easy reach of train, bus and other transportation mediums is far more likely to sell than one that doesn’t offer these conveniences. It isn’t good enough to find signs of infrastructure development today, though; you need to research for information on improvements possible in the future. If you do know that such projects are about to take off, you can usually make a killing with your investment, buying in at low prices.

 

Martin Wallenburg has been investing in property for a number of years and is always willing to provide some useful insights to an online audience. He is a regular writer for a number of property and investment websites.

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