Many people shy away from real estate because they believe it is a risky investment. As such, many individuals miss out on the low risk investments which could have potentially brought about substantial income. Although any property carries a certain level of real estate investment risk, there are a number of low risk investment options that offer investors peace of mind. Read on to find out what the best low risk investments are.
What Real Estate Investment Strategy Should I Use?
Long-Term Rental Properties
Rental properties can be fantastic low risk investments. This is because they often offer a high return on investment and consistent cash flow that — if managed properly — can offer you a sizeable profit.
There is a huge demand for rental properties in the current housing market. With more and more people finding it difficult to qualify for a mortgage, people are renting homes for much longer periods of time. This real estate market trend can be expected to persist for years to come, meaning that there will be a high demand for long-term rentals for the foreseeable future.
Related: The Complete Beginner’s Guide to Investing in Long-Term Rentals
Short-Term Rental Properties
The market for Airbnb and similar services is growing rapidly. Many real estate investors are now even heading towards Airbnb as an investment strategy. If you intend to invest in a region with heavy tourist traffic, offering short-term rentals can be hugely lucrative. But still — Airbnb vacancy rates can fluctuate, right?
Using the heatmap analysis tool offered by Mashvisor, you can get a glimpse of the anticipated Airbnb occupancy rates for different listings within a region. You might be shocked to find that some neighborhoods in touristic cities can have very high Airbnb occupancy rates. Tourist hubs can be some of the best places to invest in real estate because of this. Short term rentals can be a very low risk investment if properly researched before purchase.
Multi Family Homes
For the last several years, investors haven’t stopped talking about multi family homes. This investment property type is fulfilling a much-needed demand in the current real estate market, which has allowed it to take off substantially. 2020 should see a continuation of this trend, meaning that demand will be high for multi family homes. As far as low risk investments go, multi family homes are a safe bet for years to come.
Related: The Best Way to Find Multi Family Homes for Sale
Buy and Hold Real Estate
Seeking properties to buy and hold can be a fantastic option for any real estate investor. The key to buying and holding real estate is searching for regions where properties are appreciating. Study housing market trends in different regions to figure out which districts, cities, or states have favorable market conditions. For example, Odessa, TX was named one of the top cities for appreciation. Real estate appreciation makes buying and holding one of the best long term low risk investments.
In the interim, your rental property can be a great source of positive cash flow, giving you enough income while you wait for your property to appreciate.
What Real Estate Investment Strategies Should I Avoid?
Flipping Houses
Flipping houses can be a very rewarding and profitable route to take. But it is far from low risk. Having large sums of money invested in physical assets can leave you vulnerable to your bank loan. If your houses don’t sell in the timeframe expected, you could face some difficult consequences. If you’re looking for a low risk investment, this certainly isn’t it.
Speculation
Many beginner investors are lured in by the appeal of real estate speculation. It promises high rewards in the short-term, so what’s not to love? While speculation might occasionally work out, it is by no means a low risk investment. For a more reliable, guaranteed source of income, consider investing in a cash flow rental property.
How Can I Lower Risk Overall?
Do the Math
First and foremost, the best way to lower risk is to find the right property before investing. There are a plethora of tools available to you which can allow you to run the right real estate analytics and properly study up on your investment’s potential. Overall, your aim is to find low risk high yield investments. You can use tools like Mashvisor’s Property Finder, coupled with our rental property analysis calculator. This will give you very clear numbers on your expected return on investment, thereby giving you a fuller image before investing. The higher your anticipated return on investment, the lower your overall risk.
Related: What Is a Good Return on Investment for Real Estate?
Find Good Tenants — and Lock Them In
One of the best ways to guarantee consistent cash flow is to lock in good tenants with a long-term lease. If avoiding risk is your primary concern, you can consider negotiating favorable terms with your tenants. This can lead to a situation wherein they are satisfied with their benefits, and you’re offered security for years to come. A mutually beneficial lease can provide you with years of consistent rental income and lower your risk overall.
Have a Backup Plan
Vacancies in rental properties are a fact of life when investing in rental properties. There are a lot of things you can do to prevent them, which you should carefully take into consideration. But if all fails, and you end up with an empty unit for several months, you may face a financial setback. This is why every smart real estate investor needs a contingency plan for vacancies. You can, for example, plan to list your vacant unit on Airbnb for the duration of the vacancy. This can offset the loss you would have otherwise faced and ensures consistent cash flow. Low risk investments still need backup plans!
Diversify Your Assets
Real estate market trends are ever-changing, and some slumps are to be anticipated every now and then. By having a diversified portfolio of assets, you can ensure that your other assets can lift you through a slump in any of the others.
Bottom Line
Rental properties should be every real estate investor’s go-to for low risk high return investments. With proper planning and the right analysis tools, the savvy investor can mitigate a lot of the real estate investment risk. Making a number of safe investments can go a long way to a substantial and sustainable income.