There are many misconceptions when it comes to real estate, but one of the most common ones is that it is 100% free from risk. Many investors put their capital in rental properties and other real estate assets, assuming that losses are scarce and far in between. But that couldn’t be further from the truth.
Like every other business venture, real estate carries with it a unique set of risks that makes learning risk management essential. While it’s vital to learn how to steer clear of pitfalls peculiar to being a landlord, it’s also necessary to be aware of the opportunities.
In this article, we’ll take you through some real estate investment tips that teach you how to manage risks while seeking opportunities.
#1 Keep close tabs on your property
The first and most obvious way to manage risks for your investments is to keep a close eye on your property. It’s crucial to take precautions against elements such as wind, water, and pests. But burglars can also pose a threat to your tenants by rendering your apartment unsafe. The best thing to do is be proactive by buying insurance against theft, fire, and other damages that might result from external forces.
Securing your property against these dangers could also be an opportunity for you to make more profits. Tenants will be willing to pay more for buildings equipped with security cameras, burglar-proof windows, the latest smoke detectors, and other preventive measures that make them feel safer.
#2 Monitor the market through thorough research
The real estate industry is not static, and the only way to keep up is by doing your research. If you plan to sell your house, you might look at historically strong and weak peak points, what the occupancy rate is like, and so on. On the other hand, buyers will find more interest in current market rates, cap rates, and other relevant information. Even if you’re not actively planning to buy or sell, it’s essential you get some routine update on the market’s appetite so you can protect your investment.
#3 Diversify your investments
As the saying goes, avoid putting all your eggs in one basket. Diversifying your investments has proven to be one of the ways to protect your finances. This is true because forces such as the current reality of the economy, inflation, and other factors can affect the market. Contrary to popular belief, the real estate industry is not immune to these forces, so investors with their fingers in different assets minimize their risk significantly.
Of course, a diversified portfolio doesn’t automatically remove all the risk associated with investing; it only reduces it. For example, you’ll lose less money if one out of three or four of your assets suffers a loss instead of owning a singular asset that takes a hit. It could also work the other way around if one of your investments experiences a surge in profit.
#4 Avoid litigation
Litigation is another risk that comes with investing in real estate. From wrongful evictions to breach of landlord-tenant agreements, there are many ways your tenants could summon you to court. While following up with your obligations as a landlord is one of the best ways to avoid a lawsuit, sometimes these things are out of your hands, such as when you have a problematic tenant. In such scenarios, having insurance is still the best way to protect yourself and your investment.
Familiarizing yourself with national and local real estate laws is another way to protect yourself from litigation; remember that ignorance does not provide absolution from the law. You can always hire a real estate lawyer to oversee your buying and selling of property and ensure the procedure falls within the confines of the law.
#5 Look into fractional ownership
Fractional ownership applies when two or more investors own a specified percentage of a real estate asset. In this way, all co-owners share in the profit of the investment. While this might not sound like a favorable outcome, it also means all investors share in the loss, which could provide a cushion during an under-selling.
Finding a balance between managing risks and utilizing opportunities is key to maximizing your capital and making the most of your investments. No one answer fits all when it comes to your investment because everyone has a different tolerance for risk. It’s in your best opinion to conduct your market research, keep close tabs on your property, avoid litigation and find other opportunities that fit within your comfort zone.
Of course, you could always hire a professional to manage your real estate investment as these tasks can quickly become overwhelming. More so, an experienced real estate manager can offer more professional solutions when tackling risks or assessing apparent opportunities.