Real estate investing can be an exciting adventure and a very lucrative business. But it’s that seductive high profit potential that makes many investors jump in with no net, no plan and very often, no resources. The truth is that real estate investing is a risky investment. In order to minimize those risks, investors must take specific steps before jumping in. Below are 7 strategies for minimizing your risk with real estate investments.
1. Define your Financial Goal
Have clarity about what you want from a financial investment. Many investors make the mistake of falling for someone else’s idea of what’s a “good deal.” The truth is that everyone has their own different financial goal. You should be clear about your own goal. Are you looking for quick cash? Are you looking for monthly cash flow? Are you looking to park your money for a few years and get future appreciation? The clearer you are about what your financial goals are, the easier it will be to gage if your investment is on track or not.
2. Find your Purpose for Wanting to Invest
Real estate investing can be very intimidating and it’s easy for a new investor to be paralyzed with fear even in the presence of the “deal of a lifetime.” The truth is that real estate investing is a number analysis game that can easily be stopped by emotions. To keep yourself from getting overwhelmed and hiding under a rock, be aware of your motivation for investing. Are you looking to eliminate debt? Are you looking to secure a financial future? The vision of your purpose will keep you in the game.
3. Select your Investing Strategy based on your Financial Goal
There are many, many, many ways to make money in real estate. So, to avoid being swayed by the “deal frenzy,” you should always select your investing strategy based on what you already decided that you wanted financially. This will keep you from buying cheap vacant land when what you really want is cash flow. No matter how tempting that cheap vacant land is, it’s not in line with your goals. Pass it up or change your goals.
4. Establish your Investing Rules before you start looking at deals
Once people find out that you’re a real estate investor, deals will start coming out of the woodworks and you will be tempted every day by the “deal of a lifetime.” What do you do? Consult your investing rules and decide if the deal is in harmony or in conflict with those rules. Knowing what you want, what your investing strategy is and what resources you have available are will help you set parameters and guidelines for investing. And that in turn, will keep your risk of losing money down as low as possible.
5. Find your Market based on your Investing Strategy
Look for a market that has plenty of properties that support your investing strategy. Most new investors insist on investing in their own backyard because it keeps them within their comfort level. That’s a great idea only if their neighborhood will support the strategy that they need to make the financial goal they’re after. If not, they’ll either have to look for another market beyond their own neighborhood, change their investing strategy, or stop their investing efforts altogether. Forcing an investing strategy on a market will increase your risk of losing money.
6. Select your Team within that Market
You need to find, interview, and hire team members in the market that you invest in. You will hire individual people and companies to support your investing strategy and help you make money. If you cannot find good team members in the market that you chose, your risk of losing money will go up and you should seriously reconsider investing there.
7. Find your Properties based on your Strategy, your Market, and your Team
Now that you are clear about your investing strategy and your investing rules AND now that you’ve found a market with a good team, now you can look at specific properties to invest in. Look for properties that are in line with your strategy and your rules. This is the surest low risk method of investing in real estate.
It’s easy to be seduced by the profit potentials of Real estate investing. That’s why you need to make your investing decisions up front without the deal in front of you to distract you. The biggest mistake that new investors make is to buy properties on a whim without a plan. They spend more time trying to get out of their bad deal and less time making more money.
Learn to keep your risk down and get educated on real estate investing. Learn to create a realistic investing plan to keep your profits high and the risk of losing money with real estate investing as low as possible.