Four Strategies To Limit Your Real Estate Investing Risk

Risk blocks

Is the economy on solid ground or is the floor falling from under us? The current economy is as confusing as ever.  With the volatility, real estate has been a bright spot and is worth considering as an investment option.  The question is, is it safe? 

Here are four strategies successful investors are implementing to limit real estate investing risk.  Obviously, this is only a high-level view of each strategy so there is much more educating to be done to be competent, but this should give you an idea on some opportunities to consider. 

Lease Options

In this strategy, you lease a property from the owner with the right to buy it at some point in the future.  You then sublease the property and handle the management.  Your income comes from a spread between your lease payment with the owner and what you charge your tenant.  The real money is made as the property increases in value over time.  The way this works is to lock in a price for the home near today’s value but giving you the option to buy the property at a future date.  If you negotiate a term long enough, you should be able to ride out any market movement and exercise your right to buy when it is profitable to do so. 

The reason this strategy is low risk is because you don’t own the home.  If the value does go down, you do not need to exercise your option.  You can reduce risk of negative cash flow by creating a flexible rent payment to the seller depending on what the market dictates is appropriate or by doing a short-term lease that automatically renews.  Having done over 100 of these, I can say this is one of my favorite real estate investment strategies.  You can learn exactly how to find and negotiate these in my best-selling book The 45 Day Investor.  www.45dayinvestor.com 

Wholesale

Wholesaling is getting paid to find deal for other investors.  There are a few ways to do this but the most common is to either get a house under contract to buy and assigning the contract or buying the property and then immediately reselling it for a small profit.  A good wholesaler is an expert marketer and can find fantastic deals.  Many times, they don’t want to handle the rehab, so they sell the house to a fix and flipper for a small fee.  It can get a little technical but there are several ways to execute this transaction.  Check out this short video to learn more about how to do it right.

This is low risk because when done right, you will never close on the house.  You are in and out so quickly that you have zero exposure to market conditions.  There are also no tenants, contractors, or mortgage payments.  

Private Lending

Private lending is when you make a loan to another investor secured by real estate.  This is a great way to get involved in real estate investing for the passive investor.  You won’t need to find deals like you do with lease options or wholesaling and you also don’t deal with any property, tenant, or contractor management.  You simply make a loan and sit back and collect checks.  

When done right this is a low-risk investment because as the lender, you are the first to get paid.  Even if something goes wrong, you will be the last party in the transaction to take a loss.  If you make a loan that is less than the collateral value, you can further protect your investment.  Find out why investors with some liquidity love this option at www.thepinereport.com 

Debt Funds

Debt funds are pools of capital that are professionally managed and invested into private notes. It is a nice way to get into private lending with little downside and almost no effort.  

With the right management, debt funds could easily be the best option.  It is the only option on my list that I would consider passive.  There is no marketing your investment business to locate lease options or wholesale sellers, no networking to find borrowers to lend your money to, and no tenants or contractors. It will likely pay a little less than doing private notes on your own, but you will be well diversified and will be working with an originator and servicer that knows what they are doing.  Debt funds often have a small minimum investment so almost anyone can get involved.  Get more information about the Pine debt funds here https://pinefinancialgroup.com/investors/