Although an investment property carries the potential for considerable gains, it also comes with a fair number of risks. Given how much capital goes into the typical investment property, it’s only natural that investors would seek to minimize risks. Unfortunately, many fledgling investors aren’t exactly well-versed in how to do this. So, if you’ll soon be purchasing your first investment property and are looking to keep risks to the barest of minimums, take heed of the following tips.
Have the Property Inspected by Experienced Professionals
Professional inspections are among the most effective vehicles for minimizing risks when purchasing a rental property. Even if a property appears to be flawlessly maintained, a bevy of serious – and costly – issues could be lurking beneath the surface, and unless you’re a certified inspector, you’re unlikely to be able to spot them. Needless to say, discovering large problems with a property long after you’ve purchased it can prove immensely frustrating and financially disastrous.
So, regardless of how confident you are in the condition of a property, make a point of having it professionally inspected before proceeding to purchase it. For one thing, you may not be able to get the property insured if certain inspections don’t take place. Secondly, the results of the inspection may provide you with justification for requesting a reduction in price. Depending on what kinds of problems an inspection uncovers, you may be well within your rights to ask that the seller deduct the repair costs from their asking price.
Furthermore, you should never allow yourself to be talked out of inspections. No matter how persuasive an argument a seller makes, you, as the buyer, have nothing to lose – and quite a bit to gain – from insisting that inspections take place.
Do Some Research into the Property’s Location
Even if a rental property offers copious amenities and has been perfectly maintained, it may prove an unwise investment if it’s located in an area with little to not demand for housing. It’s no stretch to say that a property’s location is every bit as important as the condition of the property – in some respects, even more so. So, before committing to purchase an investment property, make sure to do some research into its location.
Getting a feel for local home values and rental rates will give you a good idea of how much an investment property in this area is truly worth and how much you can reasonably charge in rent. Additionally, if an area has a booming population and is constantly receiving new arrivals, there’s a good chance that demand for housing is abundant.
Consider Real Estate Crowdfunding
Despite being a profitable area of investment, real estate typically doesn’t come cheap. Even the most affordable investment properties are liable to place a short-term strain on your finances. Furthermore, since success is never guaranteed, it’s understandable that you’d want to keep financial risks as low as possible.
This is where real estate crowdfunding can prove helpful. Per the name, this practice involves pooling your resources with other investors and purchasing properties as a group. In addition, these properties are often located by individuals who are highly adept at finding smart investments, thereby minimizing risks even further.
However, keep in mind that going the crowdfunding route means that you personally stand to make less of a profit from any investment properties. So, while you may have a lot less to lose, you arguably have a lot less to gain, as well. Of course, this isn’t to say that you close yourself off to the prospect of crowdfunding, but rather that there are a variety of real estate crowdfunding things to consider before making your decision.
Investment properties aren’t always low-risk ventures. In fact, one could argue that every property represents a high-risk investment in light of how much capital goes into such purchases. With so much money at stake, risk reduction should be among the top priorities of anyone looking to purchase an investment property. While there’s no magic wand solution for the many risks associated with investment properties, there are a number of ways you can keep risks to a minimum. Investors who are interested in playing it safe will be well-served by the pointers discussed above.