6 Tips for Risk Reduction in Real Estate Investing
There is always a big risk for new real estate investors who are beginning to invest for the first time. The fear of losing money can deter people from getting involved in real estate investing. Certainly, it’s a valid concern. Real estate investment, like any form of investment, is speculative and carries a certain amount of financial risk. However, experienced investors develop strategies to minimize risk. They choose investments on which they will at least break even. New investors may not have the same expertise to draw upon, but they can still take practical steps to reduce their own risk. Let us look at the 6 tips for risk reduction in real estate investing.
1. Look for a mentor
A mentor is a person who is ahead of you in experience and other social and financial factors. This is a tried and true way to get safely started in real estate investing. Find a successful investor who is willing to guide you. You may need to pay your mentor a fee, but it’ll be worth it. Your mentor can teach you how to interpret the market and how to avoid getting in over your head.
2. It is better done with a group
Try your best to look for opportunities to work with other investors. Most cities have real estate investment associations and clubs. There are even online associations you can join. Real estate clubs are a popular way for new and not-so-new investors to start investing at levels they can afford. Working with others, you’ll gain valuable experience and boost your confidence.
3. Look and get a great and good accountant
This is the person who will be dealing with the accounting part of the real investment transactions. Buying and selling real estate has so many tax implications that any serious investor should have professional advice. An accountant who specializes in real estate tax law can show you ways to earn more profit. Make sure that the accountant you select is highly experienced in this area to be precise.
4. Don’t rely too much on the market
Don’t depend on market appreciation to make an investment profitable. Pay attention to the movements of the real estate market. The real estate market is influenced by factors beyond your control. These factors include; interest rates, population growth, major employers moving into or out of the area, etc.
5. Don’t Overcapitalize
A common mistake of new investors is to spend money that will not be recovered when the property is sold. Rehabbing and reselling houses is an investment method that may seem easy and profitable. Sadly, many people don’t fully analyze the state of the real estate market and all the expenses involved in fixing up the property. They put a lot of money and heart into repairs and improvements. Too much, in fact. They end up overcapitalizing and are unable to resell the house at a high enough price to make a profit.
6. If you are working, don’t quit your job
Sometimes you may think of investing in real estate while you are still working. It can be difficult to juggle full-time employment and real estate investing. Nevertheless, don’t be in a hurry to quit your job. Wait until your investment profits at least equal your salary. The security of a steady income is important to most people, especially those with a family. With a job as a backup, you’ll be able to achieve what you want. More importantly, you won’t make foolish deals out of panic or financial need.