How to Reduce Real Estate Investment’s Risk Factor?

Posted by Kiran Shabir on June 19th, 2021

Risks are a part of any investment ventures. In fact, the higher the risk, the more you stand to make from it or lose, for that matter. So, do not let the fear of risks deter you from exploring an otherwise highly profitable investment option. In the case of real estate investment, almost all of us know at least one person who is making good money in this particular industry. If they can do it, so can you!

Besides there are always ways to carefully evaluate every property you invest in and calculate how much of a risk it is to invest in it as well as how great a profit it could make if you took that risk. Also, it is not too difficult to minimize that risk anyway.

Here are some tips and tricks to show you that it is possible to reduce the risk factor in property investment and make healthy profits.

Evaluate Every Property

In an effort to lower the risks in property investment, you have to put in the effort to locate a suitable property. These days there are even tools available online to help you study the potential of any given property. They give you some great real estate analytics to help make your decision of whether or not you should invest. If the results are favorable then you should go for it. But if the analysis indicates any serious issues or analysis shows some issues that you feel comfortable having to handle or manage, drop that property like a hot potato. If your heart isn't in it, the investment isn't worth it.

Your goal is to locate the properties that are low-risk investments but will offer a high yield. Another way to figure out if a property is worth investing in is to conduct a research online. Go online to find out about the potential of similar properties in similar locations and how much they have appreciated over time. This way you can assess the potential of any property but do make sure to never rely on online resources 100% and do some physical research too. When you have the right information and you can see the full picture where a good profit margin is indicated, invest away.

Find Good Tenants or Buyers

Once you have bought a property such as flats for sale in lahore, an apartment, or a house, there are two possible ways to make profits. Either you hold that property until its value appreciates and then sell it for a sizeable profit, or you could rent it out creating a consistent revenue stream. However, if you decide to rent the property make sure that you find good tenants for it and have them vetted. It helps you in a long run. Renting out properties has some legal aspects and the process take some efforts. Therefore, it would be prudent to find tenants that do not move on within a couple of months and you have to go through the process all over again. An easy way to manage this would be to lease the property for a fixed period of time like a year or two at a time. This way you get to lock in a monthly revenue stream for a fixed period. And before the lease is up you can either extend it or find a replacement for your tenants in time.

There is a way to make profits from the properties that you bought to hold and then sell after their value has appreciated. While you are waiting for those properties to gain value, rent these out and start bring in some additional cash.  Other than being a profitable revenue source, while these buy-and-hold properties are on a lease they can cover any maintenance expenses and you will not have to pay from your pocket. By the time you sell those properties, you would have made a sizable profit in the form of rental income.

Remember to Diversify your Asset Portfolio

Trends in real estate change every day. Even demands and preferences of buyers may change due to a plethora of factors. So it would be wise not to put all your eggs in one basket. Best way to reduce the risk of having your money tied up in one asset class and have to suffer losses if the trends do not change in your favor, would be to diversify your portfolio of assets. Invest in different kinds of properties. There are several options such as a flat for sale, luxury residential options such as Union Luxury Apartments, houses, etc. With this type of diversified portfolio, any changes in the real estate market trends would not affect your profit margins too much. If an asset class is not in demand currently you could always hold that property while its value keeps appreciating. When the trends finally change and you can sell it to make great profits. Meanwhile you could do business as usual with the asset classes that are in demand.

Conclusion

If you are looking to reduce your risk factor in real estate investment, go with rental properties. They are extremely low-risk assets and with the help of some careful planning, they can become a safe investment that produces sustainable and substantial income.