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Reducing Risk in Real Estate Investments

reducing risk in real estate investments

If you’re thinking about investing in real estate, there are a lot of factors to consider. Do you purchase a house at market value because a real estate agent said that the market in a given area is hot and prices are rapidly climbing? Where should you buy? What sort of property will reap financial rewards faster? Reducing risk in real estate investments is key if you want to avoid your new investment becoming a money pit instead of a money maker.

Use these tips to help avoid some of the common pitfalls and elevate your investment opportunities.

1. Don’t Go Out on a Limb

Everyone likes to get a deal, but in order to make money on real estate, you’ve really got to dig in, do your research, and sniff those deals out. No one knows that better than Warren Buffet, who advises people to focus on purchasing undervalued assets. If you purchase on the high end, you’re taking a risk in assuming that it will go up in value. By purchasing something that’s undervalued, there’s only one direction for that value to go, even if current market conditions mean that it may take a bit to get there.

2. Location, Location, Location

Yes, it’s a tired cliche in real estate. However, location really does matter, especially if you plan to use your property as a rental to generate passive income. Continuing on Buffet’s advice to purchase undervalued assets, it’s a great idea to purchase real estate in pre-boom cities. How do you figure out where the next boom will be? Look at the numbers and see if the population and job growth is going up as crime rates drop. Once the boom happens, property values will start to shoot up, as well.

3. Put Your Property to Work for You

Purchasing a property with plans to make money on long-term appreciation can be a bit of a gamble. You don’t know how an area may change in the next five to ten years. The best investment strategy is to put your property to work earning rental income right away. This will give you the ability to look at available properties with plans to purchase one that will rent out quickly and will be easy to maintain. Especially if you hire a property management company to take care of all of the nuts and bolts of managing tenants, payments, and maintenance, rental real estate is a fantastic way to make passive income. If the property appreciates in the long-term, that’s just icing on the financial cake.

4. Instincts Matter

Even if you’re new to the game of real estate investing, if something doesn’t seem right, pay attention. If you aren’t clear on something, don’t hesitate to ask questions and keep asking them until you have the answers you need. If you have a bad feeling or if something just isn’t adding up, don’t hesitate to take a step back or even walk away. Successful investors often say that they owe their success not to the excellent deals that they completed, but to the bad deals they avoided.

5. The Numbers Don’t Lie

Emotion is not your friend when it comes to real estate purchasing, but the numbers are. Reducing risk in real estate investments depends on analyzing property values, the cost of remodeling an outdated property, how much the property will cost to own and operate it, as well as potential rental income. How can you be sure that the figures you’re looking at are accurate representations of what you can expect? Don’t wing it by searching online. Instead, hire a knowledgeable real estate investment firm to guide and advise you.

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