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5 Strategies for Reducing Risk in Property Investing

Updated: Jan 30, 2023

Looking to jumpstart your property investing career? In this blog post, we will discuss five strategies for reducing risk in property investing. These strategies will help you to develop a solid foundation that can withstand the challenges of property investment. By implementing these six steps below into your plan, you'll be able to reduce risk and bring stability to your investments!



Strategy One – Know the Market You're Investing In

The market you invest in will determine a lot about what type of investment is best. It's important to do your research and understand how the housing market, economy, jobs, etc., can affect your potential tenant pool. For example, if you're investing in a neighbourhood with low income rates, there will be fewer renters who can afford your rental property. A cheap neighbourhood with a high crime rate however, will scare off prospective tenants. You need to find properties that have a good ratio of Price to Rental value. This is because rent costs don't increase proportional to house prices.


For us, the number one rule is always: 'area research first'. And remember that a good agent will give you their honest opinion about the pros and cons of the neighbourhood so don't be afraid to ask questions. They might even point you to an Investment Hotspot!




A good agent will give you their honest opinion about the pros and cons of the neighbourhood.



Strategy Two - Find the Right Property


Image shows a house that was recently sold.
Property we bought as an investment after a good amount of research.

It's important to find a property that has both good cash flow and is located in an area where you'll be able to attract tenants quickly. There are several factors that will affect your ability to make money from your investment, so it's best not to take any chances with this part of the process! For example, if your property has a high vacancy rate because it's in an undesirable area or you're having problems getting the tenant to pay rent on time then this will cost you money! Make sure that your rental can bring in enough income to cover all of these additional costs. In some cases, increasing the rental value may be able to cover the costs of these additional expenditures. But be careful! If you increase your rental value too drastically, then it will cost more to rent out in the long run.


Strategy Three – Have a Solid Business Plan

A business plan is the best way to determine what you're able to spend and how much profit you can expect. This will help you make smart decisions when choosing your property as well as give you an idea of whether or not it's worth investing in that particular property. A good business plan outlines all costs associated with your investment and includes things like vacancy rates, potential repairs/maintenance costs. It also includes a realistic timeline for when you can expect to sell your property. Having multiple exit strategies for an investment property is not just advisable, its essential!


Strategy Four – Use a Dedicated Property Calculator to Show Cash Flow


A good property calculator will help you determine how much cash flow your particular investment property is bringing in. This information can be very helpful when choosing the right type of tenant as well what you plan to charge for your property in order to achieve maximum ROI (Return on Investment) or yield. Flipping properties will also be much easier when you can simply place in the values on a calculator to determine your expected profit.



Strategy Five – Know Your Exit Strategy

As with any investment, it's important to have a plan for when/if things go wrong! This is why having multiple property investing exit strategies in place before investing is so important. Knowing how you would handle certain situations up front can really help reduce risk. An exit strategy is typically divided into two main areas: your financial plan and when/how you'll sell. Your financial plan should contain a list of all expenses associated with owning the property as well as all income that it's bringing in, this will allow for greater accuracy in determining whether or not your investment is worth pursuing. Having an exit strategy that includes a list of pre-approved buyers can help you get the most money for your property as quickly and easily as possible so great networking opportunities can be an invaluable tool to utilise.


An exit sign is used as a metaphor for the exit strategies in property investing. It should be clear, easy to spot, and discernible like exit signs.
Your exit strategy should be simple, clear, and discernible the moment you enter, just like this sign.

Having multiple exit strategies for an investment property is not just advisable, its essential!

Summary

Property investing is a risky business, but there are some things you can do to reduce that risk. The strategies we've shared in this blog post will help you make the most of your investment property and get the maximum ROI possible for your money! These tips should save you time and energy by providing all of the information up front so that you don't have to worry about anything when it comes to purchasing or maintaining an investment property. Let us know what other questions or thoughts you might have below in the comments section. Our team would love to hear from our readers!



How can Property Store help?


Property Store is a Property Management CRM Software designed by property investors for property investors. The software can help you with the five strategies to further mitigate the risk of property investing through the following:

  1. Property Store's built in networking feature will allow you to communicate with other users (property investors, builders, brokers, estate agents) in your chosen area that may share their own insights.

  2. Property Store's tools and features such as the Investment Calculator will allow you to stack the deal quickly and effectively and take all of the guess work and spreadsheets out of this process.

  3. Using a service such as Property Store is the best way to track your figures and support an effective business plan. This will make sure that all of the information for each deal is accurate from day one!

  4. Property Store has an inbuilt calculator that can help you stack your deals and identify key figures quickly and effectively such as Yield, ROCE (Return on Capital Expenditure), MIMO (Money in Money Out) and Net Cashflow.

  5. Property Store will allow you to easily compare the figures of your exit strategies.


 

What are you waiting for?! Sign up now and get your first week free!


Still not convinced? Click here to attend our free webinar where we will show you how Property Store can support you in your property investing business.


Want to see more? Head over to our features page where we recorded a live demo that you can watch to see Property Store in action.


Got a question? Check out our Frequently Asked Questions Page for answers to common concerns or you can contact us here.

 

Looking to start your property investment career? Check out our blog about the things we wished we knew when we first starting out so that you can learn from our mistakes!

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