4 Ways to Reduce Real Estate Investment Risk

By Heather Taylor0 Comments

Real estate investing can be intimidating because of all the stories of deals gone wrong. But the truth is that some of those disasters likely could have been avoided had the proper care been taken. In a recent Motley Fool article, Memphis Invest founder Chris Clothier offers four guidelines that can help real estate investors eliminate some potential deal pitfalls.
  1. Inaccurate or “fudged” numbers can make a deal go sour, according to Clothier:

Trust a real estate professional in your area, and when possible, get multiple opinions on property values, renovation costs, long-term holding costs and rental rates. Hypotheticals will usually hurt you. It's all too easy to fudge numbers to make a deal seem more attractive and profitable in your head.

Searching on Google or plugging numbers into an online calculator can provide an unrealistic estimate of profits after a property renovation, he said.
  1. Have an end in sight: No matter where you are in the process of investing, make sure you have an exit strategy in mind, Clothier says. This can include renting a property out, but also consider contacting real estate investors in your network to whom you can wholesale the property.
  1. Know your limits:

You should never, ever sink your life savings into a single property. That's why it's so important to assess your capacity for investment before you even consider buying a property. Do you know the maximum amounts you can bid? Are you accounting for unexpected costs? If you make smart investment choices that respect your personal budget, a single bad deal won't send you up the river without a paddle.

  1. If it doesn’t feel right, it might not be. Pay attention to your instincts and don’t be afraid to walk away from a deal if you’re having doubts.
Clothier adds that he knows it takes time to learn the ins and outs of real estate investing, but in the meantime, always accept that there are things you don’t yet know, and surround yourself with people who can help you figure those things out.

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