Most experts are predicting that 2017 will be a good year for the real estate market in the U.S. The overall real estate market’s health has certainly made big improvements over the past six years or so, but if there’s one thing the market crash of 2008 taught us, it’s that appearances can be deceiving. There will be rough patches ahead in real estate. So how can investors safeguard themselves and their investments against them?
RICH Club dispenses invaluable advice about smart real estate investment choices to our membership at our regular Houston-area events. If you’re concerned about what the future could hold for your investments, the best place to learn and grow stronger as an investor is by participating in RICH Club and sharing knowledge with our membership.
In the meantime, however, here are five tips for investors to help them weather any storm that may come in the real estate market:
1. Buy properties that rent below the median.
If you’re investing in properties you plan to rent out, staying away from the top end of the market can keep your investment safer in the case of a major downturn. Properties with higher rents are the first to go empty in the event of economic uncertainty (or calamity). Properties that rent below the median are less affected by market fluctuations.
2. Be the best landlord you can be.
Tenants who are happy with their landlord are more likely to stick around in the event of a downturn. Tenants who have no reason to appreciate their landlords are more likely to bolt as soon as they find a better deal. Charging affordable rent, fixing maintenance issues on time, and generally being flexible where appropriate when times are good can keep the rent checks coming in if the market takes a turn.
3. Be conservative with cash-flow projections.
When making a new investment, your cash-flow calculations must account for every detail. Don’t skip any potential costs incurred, and be honest and conservative in your accounting. If the market takes a dive and rental rates decrease, you’ll have a little wiggle room that won’t be there if you were overly optimistic (or negligent) in your computations.
4. Get mortgages off the books.
Paying down mortgages as soon as possible is the best way to keep yourself from getting dragged underwater. For that reason, consider paying down rental-property mortgages as soon as you can. This gives you some leverage if the market crashes and making payments becomes a challenge.
Never put all your investment eggs in one basket. Diversification can help insulate you in lean times. It helps minimize your risk and provides balance in a down market. Don’t overload in one sector or any single investment category.
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