If you are an aspiring or even an experienced real estate investor, you must be looking for low risk investments in real estate. Although any type of investment – including real estate investing – is associated with some level of risk, it is advisable to keep this risk to a minimum, as much as possible. That’s why real estate investors are constantly hunting for low risk investments. To help you out in this endeavor, here are the best and most profitable low risk investments in real estate:
1. Renting out a part of your home
Many associate real estate investing with buying an investment property, but this doesn’t have to be necessarily the case. You can be a landlord and start making money in real estate with the real estate property that you already have, i.e., your home. While you obviously need a place to live on your own or with your family, depending on the size of your home and your situation, you might be able to spare a room or two for renting out. Actually Airbnb rooms are becoming more and more popular as travelers look for cheap alternatives to hotels. It is not impossible to be able to rent out a room with the traditional rental strategy either. There are always students or other low-income individuals who look for cheap accommodation options. But why is renting out a room in your own home one of the best low risk investments in real estate? Well, it is low risk because it is not associated with buying a rental property, taking a loan, making mortgage payments, etc. You already own your home, so the only risk you actually run is tenants who are more destructive to your property than expected. But since they will be living in your home, you can easily keep an eye on them and make them leave (legally) as soon as you start having doubts whether the rental income from the rent they pay is worth the trouble.
2. Buying a vacation home or a second home
Similar to the previous strategy, if you want to become a real estate investor nearly risk-free, you could consider the option of buying a vacation home – or a second home – and renting it out for the period when you don’t reside in it. If you have already been thinking about buying a vacation home in one of the top tourist destinations in order to enjoy a homey experience during your annual vacation, why not rent this second home out for the rest of the year? Again, this rental strategy is one of the low risk investments in the real estate business because you are buying a property anyway. It’s not like you have to get yourself into an additional mortgage with payments you might not be able to make. Actually, renting out your second home will only make paying the mortgage for it easier than otherwise.
3. Buying an investment property before buying a home
The previous two strategies suppose that you already own a home before deciding to become a real estate investor and start making money this way. Actually many experienced real estate investors and other real estate professionals recommend buying an investment property before buying a home. The logic is simple – your investment property will make money for you (helping you pay the mortgage payments in addition to hopefully generating positive cash flow after all costs and expenses), while your home will only drain money from your budget. This idea makes even more sense when you look for low risk investments in real estate. Why?, you may ask. Because even in the worst case scenario under which you are absolutely unable to find tenants, run constant vacancy, and start losing money from your investment property rather than making money from it, you can transform your rental property into your own home. The only disadvantage of this approach is that you will have to buy an investment property in which you are willing to live yourself if it turns out to be a poor real estate investment. But that’s still a better option than losing money on it, right?
4. Real estate wholesaling
Another great option for low risk investments in real estate is real estate wholesaling. The largest advantage of this strategy, which makes it so risk-free, is that you don’t actually have to buy or own or manage a rental property. You will not worry about mortgage payments and whether you will always have enough cash for them because you are not buying an investment property. You will not have to worry about a high vacancy rate because you will not be owning a rental property. You don’t even have to worry about damage caused by careless tenants because you will not manage an income property. All you will have to do is find a real estate property for sale at a good price and then find a buyer for this property. To secure yourself one of the most low risk investments possible in the real estate market, make sure to include in the contract with the seller a clause does not oblige you to buy the property yourself if you don’t find a buyer within the set period. Another possibility which many real estate experts recommend when it comes to real estate wholesaling is to find first a buyer looking for a specific property and then find him/her this property. In this sense, you could be acting almost like a real estate agent or a real estate broker while being a real estate wholesaler.
Calculate with extra care!
The last point to make in this article is not really a strategy for low risk investments in real estate. It is more of a piece of advice which you as a new or even experienced real estate investor should always apply to all your real estate investment decisions. Before you settle to buy any investment property, make sure to do all your real estate calculations and computations carefully and diligently. Don’t be in a hurry. It’s better to lose the opportunity to buy a good investment property (if you take too long to make a decision) than to buy a bad investment property (if you make an investment decision too hurriedly without all necessary considerations). It would be best to get yourself a good investment property calculator, like Mashvisor’s, to do all real estate investing computations fast and right. Just remember that low risk investments in the real estate market are fully feasible as long as you invest smartly and act carefully.