Whether you’re a homebuyer or a real estate investor, when it comes to making investments, all you want to do is minimize risk and maximize return. In a perfect world, that’s attainable. However, this isn’t a perfect world, my friend! You win some, you lose some! It’s common knowledge that if you wish to make a low risk investment, your returns are going to dwindle. Why does it have to be a choice? Why can’t you make both low risk investments with a high return on investment? Every real estate investor must know how to make money in real estate through making minimal-risk investments. In any case in the real estate investment world, you can utilize risk reduction strategies to bring forth the best of returns.
At any rate, the fear of losing money and gambling is what drives most people into having a regular income through a job. However, you won’t make more money with your money kept under your mattress. You need to invest and take risks to make your money work for you.
So, how to make money in real estate with minimal risk taken?
We all like to think that real estate is as safe as it gets. Along with the real estate market, your return on investment will fluctuate. Accordingly, here are a few risk reduction strategies that successful real estate investors have utilized:
Find the next best place for your investment property
This works by identifying where people want to live next. Are people moving away from the city and looking for more space? Or are they moving closer to cities and populated areas to enjoy the perks and offerings of a city? Real estate investors can identify these behaviors by researching current trending markets and identifying why people choose to move to them.
Recently, there has been a wide migration to neighborhoods that are closer in proximity to big cities. So, if you wish to know how to make money in real estate with minimal risk, you have to find where people want to live and act accordingly.
A fixer-upper might be a good idea
If you want to know how to make money in real estate with low risk investments, well, you can find a property that needs improvement and improve it economically. Of course, if you don’t have a proper solid plan, you will end up risking too much with fix-and-flips. But, finding a solid real estate investment that needs improvements can be beneficial and low risk. This works by putting money to attract property buyers or tenants. For construction experts and even contractors, this method is ideal for you as you can learn how to make money in real estate using professional knowledge that you already have.
There are many dos and don’ts for fix-and-flips. Invest the time to read this blog to learn all you can about them: 5 Tricks to Save on Fix-and-flips.
Find the right financing method
Financing can make or break a real estate investment. You need to know the appreciation rate of your future property and whether it exceeds the mortgage’s interest value or not. All things considered, financing investment properties is not a decision to take too lightly. Making low risk investments is about finding the right financing as much as finding the right investment strategy.
Use an investment property calculator
An investment property calculator can show investors how to make money in real estate and reduce risk at the same time. This ultimately leads to low risk investments if you have the right real estate education. Accordingly, an investment property calculator can offer you measurable means to test any potential investment property. This is mainly through a real estate market analysis or an investment property analysis. If you wish to have a go at using an investment property calculator, have a go at it with Mashvisor’s investment property calculator. You can enjoy a 14-day free trial to see what it’s all about. Click here to start.
Making low risk investments with an investment property calculator is made through measurable real estate metrics. These include Return on Investment, Cash on Cash Return, and Capitalization Rate. In other words, a smart real estate investor can find income generating assets and low risk investments by comparing different metrics for different properties and finding the best possible deal.
Related: Buying Rental Property Calculator: The First Thing to Do in Real Estate Investing
Find an investment property with low vacancy rate
A high vacancy rate is trouble all around. In any case, knowing how to make money in real estate through buying a rental investment property (whether an Airbnb rental or a traditional rental) requires real estate investors to dig through and analyze the Airbnb occupancy rate and vacancy rates for the area. Why? Well, because you are required to establish cash flow, and where do you get cash flow? Through a beautifully recurring cash flow called rental income.
It’s recommended for real estate investors to stay away from high vacancy areas. Think about it this way, having low vacancy rates means you’re going to rent out that property fast. The faster you find a tenant, the fewer expenses you’ll have to endure.
Learn more about vacancy rates through this blog post: 7 Tips to Avoid a High Rental Vacancy Rate.
To conclude
Nothing in life is risk-free. You make your choices and you suffer the consequences- the good and the bad. For real estate investors venturing into the US housing market, the previous strategies and methods are proven ways on how to make money in real estate and can help you reduce your risks while stabilizing and even increasing returns. Additionally, real estate investors must be careful not to fall for too-good-to-be-true scenarios. That’s because the real estate business offers long-term rewards. If the short-term rewards are too good to be true, they most likely are. Don’t be hesitant to make investments and specifically real estate investments. Remember, today’s investment seed is tomorrow’s rewarding fruits!
If you have any thoughts about risk reduction strategies, please share them in the comments section.