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9 Ways to Eliminate Real Estate Investment Risks

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Investing in real estate can be a little scary at times, especially for beginners. But please don’t let your fears hold you back from jumping into the very best real estate market we have seen in decades.

Instead, use these 9 steps to minimize your risk and feel good about your real estate investments.

1. Buy the right house

The good news is that real estate is on sale and distressed property is readily available at fantastic prices. You make money on real estate when you buy it, so it’s critical to buy the right house.

How to Avoid Risks

Eliminate Real Estate Investment Risks.

Everyone knows that real estate is all about location, location, location.  While it’s true that the best neighborhoods, schools, and nearby amenities are important, so are many other factors.

When buying investment real estate, you need to know:

  • What the house is worth in “as is” condition?
  • How much will it cost to be fixed?
  • What is it worth once it’s fixed?
  • What will the house rent for?

With those four numbers, you can make wise investment decisions.  The bottom line is: You want to leverage the purchase with other people’s money and be able to create a nice positive monthly cash flow and have your tenants pay down the debt service (your mortgage).

2. Use the right financing

Often, it’s better to rehab your financing rather then rehab the house!  To reduce risk, you should buy houses without involving banks.

How does that reduce risk?  Most people don’t read their closing documents that include giving the bank a full-recourse loan through a personal guarantee, handing over future rents with rent assignments, and ultimately putting all your other assets at risk if something goes wrong.

3. Know your house

Distressed real estate is frequently sold as is.  This means that “buyer beware” is part of the deal and you accept everything that is wrong with the house.

The list of nasty things that could be wrong include structural damage, mold, lead-based paint, termites, underground oil tanks, bad roofs, faulty wiring, and a long list of other defects.

It’s fairly easy to minimize your risk when buying distressed houses.  Get a home inspection from a certified home inspector or bring a licensed contractor to carefully review the home with you.  Being prepared on your purchase will help you sleep better at night.

4. Know your boundaries

The yard can sometimes be deceiving. It can be tricky to know the boundaries of the property, and you don’t want a future surprise (like the back corner of your garage is on your neighbors lot).

The way to reduce the boundaries risk is to have a licensed surveyor provide you with a survey before closing.  They’ll put stakes in the ground and ensure you have no encroachments into your neighbor’s property.

5. Use a professional team

Cutting costs on your real estate team could lead to failure.  Build your team to help you invest in real estate for the long-term.

Your team should include a good attorney, Realtor, contractor, and property manager.  Your team will be able to provide you with the advice you need from acquisition through renovations–and long-term with property management.

Investing in real estate can be complicated and having a great team can make the process manageable, so that you succeed long-term.

6. Protection from history

Buying foreclosures can provide tremendous upside opportunities for equity and long-term cash flow.  The downside is that the investor must be very diligent in ensuring that the title is clear and insurable.

Sometimes title can be insurable, and sellers will try hard to get buyers to close on a house with less than perfect title.  Buyer beware and be very certain that title is both clear and insurable, so that there are no surprises that end up threatening your equity position in a house. Your title company can help you with this.

7. Protection from the future

Do not forget your homeowner’s insurance.  If you are buying houses with bank mortgages, it is highly unlikely you will ever forget your insurance.  However, just recently, I know of a cash buyer who forgot to get insurance.  Two days after they purchased the home they remembered and scrambled to get the house insured.

What would have happened if the house had burned down in those two days without insurance?  They would have lost their entire investment.  To reduce your risk in real estate investing, always have proper homeowners insurance and additional liability coverage, in case a tenant gets hurt and tries to sue the landlord.  Avoid these risks by getting homeowner’s and additional liability insurance.

8.  Avoid the copper bandits

What is a copper bandit?  They are thieves that love to prey on vacant homes. They crawl beneath homes and cut out all the copper pipes and vandalize the condenser to get even more copper to sell at the local recycling plant.

To help protect your investment, lock your crawl space access panel and consider concealing your outdoor condenser with a fence or locking it right to the ground.

9. Avoid the thieves

When you buy a house that is vacant, you can become a target to common thieves who want to break in.

To reduce this risk, be sure to install new locks, including a solid deadbolt. Door knob locks are easily broken into with a credit card, but it is much harder to break into a door with a deadbolt.

Leave an interior light on inside. I like to leave a light upstairs in the hallway on. It’s just enough light to make someone think there is activity inside the house. If you are buying a house in a very rough area, you may also want to leave a radio playing inside the house. Be sure it is talk radio and it plays loud enough to make potential thieves think there is activity inside the house.

Now you know how to eliminate most of the risk in real estate investing

Real estate investing does not need to be risky in order to provide tremendous returns. Take these 9 simple steps, and you can rest comfortably knowing that your investment is protected. I invite you to comment and add to the list and provide your own thoughts on the items highlighted. I look forward to hearing from you!

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About the Author...

Jim Ingersoll is a real estate entrepreneur who has bought and sold hundreds of homes. He is the author of Investing Now and Cash Flow Now (both available at Amazon.com), and enjoys speaking and coaching others on how to obtain their financial freedom.

Jim is Head Real Estate Coach and Trainer at: Coaching.CREonline.com

His website is InvestingNowNetwork.com

You can find Jim on Facebook and Twitter.

Comments

  1. Daniel says:

    Great Tips!

  2. AWESOMER!

    Good stuff! This is what I need to move ahead in the real estate world. Keep doing what you are doing.

    Thank you,

    Bob

  3. Jim Ingersoll says:

    Thanks Daniel – There are more, but this list is a good start. With due diligence and discipline investing does not need to be risky for investors.

    In today’s market it can be quite forgiving.

    Jim

  4. Roch Jimenez says:

    Great article. Do you have any articles that beginners know what contracts we need to get started?

  5. Jim Ingersoll says:

    Bob – Thanks and glad to hear you are moving forward!

    Roch – What type of contracts are you looking for?

    Jim

  6. Blue Fern Real Estate says:

    Great tips! We agree with #7 especially. Real estate investment is a long-term win! There’s not much difference between a family looking for a new home and an investor – both see owning real estate as being a long-term investment. If you’ve got the ability to buy, there are some great houses on the market right at the moment, so now’s the time to think about making the decision to buy. Why buy rather than rent? It comes back to the fact that with few exceptions, owning property is a good long-term investment strategy.

    For more see our blog: bit.ly/BlueFern
    @BlueFernRE

  7. Jim Ingersoll says:

    Hey Blue Fern — How is your market doing?

    This is the best opportunity of our generation, glad to see you are ready to roll.

    Jim

  8. Jim Ingersoll says:

    We can keep this going: Here is #10 on the list of eliminating investment risk:

    10. Do not take title in your personal name and do not sign in your personal name

    Learn to use land trusts and/or LLC’s for your asset protection and privacy. If you are using banks for financing, this can be a challenge so be sure to read #2!

    Happy Investing to all!
    Jim

  9. Mose Inspector says:

    Just to add to point #5 – You will definitely want to add a good home inspector to your team. Buying a home is an emotional experience. The financing and the negotiating can sometimes overtake the importance of examining the condition of the home. A qualified professional home inspector will examine all of the major systems of the house, including the roof, structure, exterior, plumbing, electrical, insulation, interior, heating and cooling. Make sure you have a good rapport with the inspector and feel at ease asking questions and receiving explanations at a level you can easily understand. Your inspector should be able to use plain language to help you understand the condition of the home before you buy.

  10. Chris says:

    Really great advice in this article!!! This is an awesome site for anyone who wants to learn more about real estate investing!!

    Chris Benton

  11. The Permit Report says:

    Another good way to minimize your risks in a transaction is to obtain the building permits, certificates of occupancy and other related records of property alteration and addition with the jurisdiction. Sometimes this process can be lengthy and cumbersome, but a simple Google search of “permit report” will help you to find experts who specialize in retrieving and researching property . My company is permitreport.com

  12. I REALLY wanted to do the LLC webinar, but I live in Australia and it is in the middle of my work day so I can’t attend. Is there any way I can get access to a copy of it?

    Kind regards

    • J.P. Vaughan says:

      Yes! We will replay the webinar “on demand” from Saturday to Wednesday. If you’re on our email list, you’ll get the link.

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