Learn how to protect your real estate investments with these 3 tips.
Investing in real estate can give you an incredible sense of security and economic accomplishment. However, just like any investment, you have to be on the lookout for any hidden risks. These risks have the power to sink your real estate investments.
Creating a proactive real estate investment strategy is your best bet. Proactive is the key word here. Like in other forms of investment, being proactive will ensure that the dreams you are saving for aren’t loss to a lawsuit.
While there are several ways to protect your investments, in this article we’ll focus on three steps you can take today.
Real Estate Asset Management
When it comes to protecting your real estate investments, a real estate asset management company is a smart option. The main objective of these companies is to make sure that the real estate investor maximizes their returns and preserves their assets.
However, what a lot of investors fail to realize is that the whole process of asset management begins before the purchase of your first property. When you talk to a real estate asset management expert they will first evaluate a number of factors related to the property. Here are some factors you can expect a real estate asset management company to consider:
- Growth options.
- Location of the property.
- Cash flow forecast.
- Property titling.
- Expenses and revenues.
A good real estate asset management company will consider all these factors in determining whether a property is a worthwhile long-term investment, that will increase your returns over time.
What About Property Management?
It’s important to know the difference between property management and real estate asset management. Real estate asset management experts are professionals who are hired to assist the real estate investors or property owners in making decisions that will not only reduce the risk associated with their investments, but also increase their returns in the future. However, the property management firms have a different job description. They manage the daily activities of the landlord like rent collection, eviction of tenants, and repairs.
Meanwhile, real estate asset management firms offer professional asset advice before and after a purchase of a property. Their detailed review of the past, current and future trends in the real estate market will help you in making the correct decision when investing in real estate.
What Are the Risks to Your Real Estate Investment?
If you lack the proper protection strategy for your real estate investment, one mistake can sink your entire investment plan. In order to come up with these protection strategies, you need to understand the types of risks associated with your real estate investments. After understanding the risks you will be able to come up with a proactive strategy. There are two types of risks in real estate investing:
- External Risks: These are threats affecting your assets which are brought by personal liabilities. A person can be involved in a legal issue, and the amount you are requested to pay is not fully covered by your insurance policy, their legal counsel can decide to target your real estate investments. In order to protect your holdings from creditors, you need to have them structured properly. This means you won’t have to lose your real estate investments even when your personal assets are too little to handle any monetary obligation. The greatest external risk that most real estate investors should watch out for is divorce. Talking to your lawyer and real estate asset management firm will help you to come up with a good strategy to protect your real estate investments from external threats such as divorce.
- Internal Risks: Unlike the external risks, the internal risks are threats that are brought by occurrences which directly affect your property. These liabilities can arise from anywhere. The most common internal risk is an onsite accident. If it’s proven that the accident happened due to negligence by the property owner, then it will affect your investment property.
In order to make sure your real estate investments are protected from both types of risk, you need to work with a real estate management firm that can advise you on insurance coverages, venues, titling and entity structuring.
A real estate management firm that has ample knowledge and experience on how all these factors work together will be able to successfully help you come up with a protection strategy for your real estate asset at all times.
Hire a Professional Real Estate Attorney
One can never fully protect their property from lawsuits. However, getting an attorney that specializes in real estate law is a worthwhile investment. When hiring a law firm, make sure that they are experienced in the type of real estate you are dealing with. There are differences in commercial and residential real estate. Thus, you want to make sure that your legal representation either specializes in or has significant experience in both.
Also keep in mind that the court of law can be fickle. The decision of a court can end up making new case law. This can expose your real estate investments to a number of risks. Again, hiring an experienced real estate attorney can help you avoid petty and obscure legal risks.
Bonus Real Estate Investment Protection Tips
These three tips will help you protect your real estate investments. However, there are additional steps you can take to strengthen your real estate investment protection strategy.
Other tips for real estate investment protection are:
- Treating your tenants right.
- Proper maintenance of your property.
- Investing in improvements that will add value to your property.
- Getting the proper insurance coverage for your property.
- Coming up with a legal structure that will protect your real estate investments.
- Avoid being overleveraged.
- Always have a strategy when buying in real estate, buy low.
- Make sure you have a good professional relationship with the local government.
- Come up with an exit strategy just in case.
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