With each investment you make, you are taking a risk. Ultimately, the real estate investment business is based on calculating risk and return. To be exact, some real estate investments have high returns but turn out to be high-risk investments. On the other hand, some real estate investments might have a low return on investment but are considered safe and low risk investments. Of course, a smart real estate investor is who balances both outright and makes investments that have a good return on investment while considered among low risk investments.
How can real estate investors make low risk investments?
Find low maintenance properties
This is what most successful real estate investors do. They find investment properties that require little maintenance and invest in them. Makes perfect sense. Low maintenance investments mean low maintenance costs. Ultimately, this leads to low risk investments as you will be utilizing your rental income into other streams rather than spending it on fixing up the property.
In any case, make sure not to buy a fixer-upper if you’re not intentionally doing so. You should find an investment property and set it up for rent with minimal cost. Moreover, real estate investors don’t prefer to go for older properties. They most likely have old plumbing, old electricity, and old floors – all of which will cost a lot to maintain or replace. Thus, it makes more financial sense to buy a low maintenance property if you’re going to buy a rental property.
Buy properties in nice areas
The importance of location is immensely measurable. Real estate investors look for the area before they look for the investment property itself. Additionally, the location sets the standards for your property and the type of tenant your property is going to have. So, make sure to know all the real estate comps of any neighborhood before jumping on the bandwagon. To learn more about real estate comps and how they can affect your real estate investment decision, read this blog post: How to Find Real Estate Comps Most Effectively.
Furthermore, keep in mind that buying an investment property that has a good cash flow but is located in a bad neighborhood is going to bring you additional costs and headaches. As a real estate investor, you have to make sure to study all aspects of a purchase before committing!
Look out for a high average income area
Whether you’re going for single-family rental properties or multi-family rental properties, you should look for the average income in the area. Why is that so important? Well, the average income determines the type of tenant you’ll get. In most cases, having a tenant who has a high average income is going to give you a headache-free experience. Typically, this type of tenant will be taking the best care of your property. In other words, having high-income tenants will translate into low risk investments.
On the other hand, having a positive cash flow property in a neighborhood with low income is going to translate into late payments and even evictions. If you want some more information on how to pick the right tenant for your rental property, read this blog post: Tenant Screening Process: Red Flags Landlords Should Not Ignore.
Use an investment property calculator
Using technology when making your real estate investment decisions is not uncommon these days. In fact, this is one of the most reliable real estate investment tools that lead to low risk investments. An investment property calculator can tell you a lot about the nature of your investment property. Furthermore, through an investment property calculator, any real estate investor or property buyer can measure the viability of the investment property prior to purchasing it. A real estate investor can calculate cash on cash return, cap rate, occupancy rates, and even the expected cash flow. This is all made possible by running a real estate market analysis through the calculator. You can also find out the real market value of any property along with its future expected value.
Consider using Mashvisor’s investment property calculator to run an encompassing real estate market analysis. This tool also allows you to find real estate comps and compare your potential investment property to others in the area. Ultimately, this will help you determine if it falls under low risk investments or not.
Click here to make use of Mashvisor’s investment property calculator and get the 14-day free trial offered.
Buy the right property
This might be a vague one to grasp, but it’s a must to determine the best low risk investments that fit your real estate investment portfolio. In any case, you’re going to look at many properties. Just make sure that you don’t place an offer you’re not convinced with. Accordingly, a profitable, positive cash flow property with a reasonably low price is what you want. After all, it’s all about buying low and selling high. If you’re contemplating to buy a rental property and turn into an Airbnb rental property, read this blog post to get enlightened: Is renting out your property on Airbnb right for you?
Consult with a real estate advisor
You will find real estate mentors and advisors to be listed in most real estate investment columns and forums. The reason for that is that they have acquired the confidence, skill, and knowledge to make it in the real estate industry. If there’s a method to guarantee low risk investments, it’s this one.
Finding a real estate mentor may not be easy, and many beginner real estate investors choose to split profits with them to gain from their knowledge in making low risk investments. Consider training with a local real estate investor. This will help you make use of his/her knowledge and bend it to your advantage!
Final words
It’s all about making money in real estate. If you manage to find low risk investments but something feels off to you, trust your guts and do further research. In addition, you must understand that it’s your responsibility to protect yourself from bad investment decisions. If you have any more insights on how to make low risk investments, please share them with us in the comments section below.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice and determine if they make low risks investments, click here.