As a real estate investor, it’s vital to protect the value of the property that you buy. That’s because real estate is a long-term investment, and you want to be sure that your asset will appreciate over time. There are various ways to protect your real estate investment from potential losses, including strategies that include flipping commercial real estate.
1. Guard against depreciation
Many factors can cause a property value to decrease, such as a change in the neighborhood, poor maintenance, or a decrease in rental income. As an investor, you can guard against depreciation by doing your due diligence when researching a property and keeping up with necessary maintenance and repairs.
For example, farmland is a real estate investment that needs special attention to maintain its value. Soil erosion can cause a decrease in the value of farmland. Hence, investors need to take steps to prevent this through control measures such as the erosion control blanket. Staying apprised of the depreciation risks to your properties can help you protect your returns over time.
2. Hire a property manager
Hiring a property manager is a good idea if you don’t live close to your investment property. A property manager can take care of day-to-day tasks like collecting rent, handling repairs, and dealing with tenants. It will also free up your time to focus on other investments.
If you don’t have a property manager, you’ll have to worry about finding suitable tenants, collecting rent on time, and coordinating maintenance. It can be a lot of work, so it’s good to outsource this responsibility. When hiring a property manager, be sure to look for one with the following characteristics:
- Proven experience
- Good references
- Clear communication
- A fair price
A good property manager enables you to protect your property without investing more of your time into your passive income streams.
3. Know your zoning laws
Zoning laws vary from city to city and state to state. Investors need to know the zoning laws in their area to invest in property that is allowable under those laws. For example, it’s illegal to convert a house into a multi-unit rental property in some areas. So, if you’re interested in investing in multi-unit rentals, you need to make sure that your city allows them.
This research should occur before you purchase the property. You should also be aware of any interest of the town or others to change the zoning laws. It could change the value of your investment, so it’s essential to stay up-to-date with what’s happening in the area.
4. Have an exit strategy
Every investor should have an exit strategy for their investment properties. This rule is vital if you plan to hold the property for an extended period. An exit strategy could include selling the property, refinancing it, or renting it out. Having an exit strategy in place means you won’t be caught off guard if the market changes and you need to sell the property.
It will also help you better understand the market conditions for each type of strategy to know when to take advantage and when to hold off. You should start thinking of your exit strategy for a particular property before buying it.
5. Diversify your portfolio
Investing in just one property can be risky. If something happens to that property, you could lose all of your investment. That’s why it’s essential to diversify your portfolio by investing in multiple properties. This way, if one property decreases in value, you won’t lose everything. Some of the best ways to diversify your real estate investments include the following:
– Investing in different types of properties
Investing in various properties means that you won’t be as affected if one property type decreases in value. For example, suppose you invest in office buildings in addition to farmland and residential real estate. In that case, a decrease in the value of office buildings won’t have as big of an impact on your portfolio. Real estate is cyclical, and each type of property goes through ups and downs. By diversifying, you’ll be able to weather the storm when a property is down.
– Investing in different geographical areas
If you only invest in properties in one city or state, you’re more likely to be affected by local market conditions. But if you invest in properties in different geographical areas, you’ll be less affected by local market conditions. So, for example, if the housing market in your city is down, but the market in another town is up, then your portfolio will still be doing well. So, again, it is because you’re not as reliant on one particular market.
– Investing in distressed properties
Finally, another way to diversify your portfolio is to invest in distressed properties. These are properties that need repair or are being sold at a discount. By investing in these properties, you can get a higher return on your investment when you eventually sell the property.
Of course, you need to do your due diligence before buying because there can be a lot of hidden risks with these types of properties. However, if you do the proper research, investing in distressed properties can be a great way to diversify your portfolio.
6. Always research the market
It’s essential to stay up-to-date on the real estate market so you know when is a good time to buy or sell a property. By knowing what’s going on in the market, you can make informed decisions about your investments.
For example, if you know that prices are increasing in your area, you may want to buy a property before the prices go up too much. On the other hand, you may want to sell a property if prices are dropping or move the property into a rental unit.
7. Have a team of professionals
No one can do everything on their own, especially when it comes to real estate. That’s why it’s essential to have a team of professionals who can help you with your investments. This team could include a real estate agent, loan officer, property inspector, and more.
By having a team of professionals, you’ll be able to get more done and make better decisions about your investments.
8. Stay organized
This tip may seem like common sense, but it’s crucial to stay organized when investing in real estate. It means keeping track of your paperwork, financial statements, and more. By staying organized, you’ll be able to keep track of your investments and make sure that everything is going smoothly.
Conclusion
As a real estate investor, it’s vital to protect the value of the property that you buy. That’s because real estate is a long-term investment, and you want to be sure that your asset will appreciate over time. There are various ways to protect your real estate investment from potential losses, including strategies that include flipping commercial real estate.
Also read: Are Investment Properties Worth It?
