With experience in the real estate and risk management fields, Tyler Burlage understands the necessity of risk mitigation. Real estate, while often considered a sound investment, is also risky because of the factors contributing to price, outlook, and profitability. Knowing how to navigate these potential problems is the key to a successful investment, but it is often easier said than done.
Real Estate Risk Mitigation Strategies
In its simplest terms, risk mitigation is about avoiding or circumventing risk. In an ideal world, you could invest your money with no risks, but that sort of unicorn investment is rare, if it even exists.
To reduce your risks, you need to understand the four contributing factors to real estate investment success: location, cash flows, vacancies, and tenants. If you can get a handle on the four components of a successful real estate deal, you can mitigate the risks of potential profit losses.
Tyler Burlage notes that most people understand that a successful real estate deal often depends on location. Buying in a luxurious, well-established, and safe area is better than purchasing a run-down property in a high-crime area. The problem is that buying in a luxurious area is way more expensive.
The most profitable investments come out of research and forecasting. You want to find a property in an up-and-coming area. A realtor can help you by reviewing the sales trends of the location for the past several years. You are looking for an upward swing in property values and the rejuvenation of the area.
According to Tyler Burlage, one of the biggest challenges a real estate investor faces is cash flow problems. Market success is about making quick and lucrative deals, and in real estate, as with other industries, cash is king.
Cash allows for quick turnovers and deals. An investor without money or a bankroll will find it hard to pick up properties in up-and-coming and lucrative areas. The best way to maintain cash flows is to work with other investors, reducing your personal risks and securing funding from several sources.
If you don’t want to work with others, limit the number of projects to only one or two and slowly build your profits and portfolio. If possible, avoid hard money or bridge loans. Short-term loans result in high interest and quickly eat into profit potential.
Tenants present a significant risk to real estate investors. It is crucial to have an ironclad tenant agreement in place to protect your interests and avoid liabilities. Also, work with an attorney and other experienced real estate professionals to develop a vetting process for potential renters.
Addressing Investment Concerns
According to Tyler Burlage, real estate, like all investment opportunities, comes with risks. Understanding those risks and avoiding them is risk management.
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