If you own real property investments, you may be wondering how to safeguard your investments in the coming year. With the increasing uncertainty in the economy, as well as higher interest rates and a dearth of homes in the market, a lot of investors want to know how to safeguard the assets that they already own.
No matter if you have just one rental property or a large portfolio of properties, there are a few strategies to protect your real estate investments even during market volatility. While you do not have to follow every single suggestion, following one or two could help in reducing the risk of financial loss.
Create an LLC
A limited liability company (LLC) will allow you to separate individual finances and real investment in real estate. Not only does having an LLC give you tax benefits, as well as protects your assets and home from the risk of being sued. This means that if the tenant files suit against you, or if you have a dispute with a creditor who is an investor, your home and assets will not be affected.
Another option is to establish an investment trust in real estate for your real estate investments. A trust in real estate can aid in the process of planning your estate and protect your privacy. For more information on which legal structure is ideal to suit your needs, speak with a business or real estate attorney.
Diversify Your Portfolio
The ability to invest in a variety of assets is a way to lower the risk you take in your portfolio. If, for instance, you’re an accredited investor with a large portfolio, you can mix short-term rentals for vacations as well as long-term rental properties. If you had only short-term rentals within the same region and the laws were changed to prevent the operation of these rentals, your entire portfolio may be at risk.
By diversifying your types of property as well as geographic locations and segments of the market, you can reduce your risk and protect your assets. This is particularly important in the case of relying on rent income to fund a component of the pension plan.
Lock in Financing
In times of uncertainty for economic uncertainty, interest rates are subject to fluctuation. If you do not have fixed-rate mortgages on the rental properties you own, it’s a good moment to obtain one. If interest rates fall, it is possible to refinance your mortgage shortly. Mortgages with variable rates may seem beneficial initially, but during times of economic turmoil, the increased rate can adversely affect your earnings and cash flow.
It’s also advisable to check your credit score and ensure that you have a good credit score. So, if you have to refinance your property, access new credit lines, or bargain with lenders, you’ll be more likely to have the best rates and conditions.
Keep Cash Reserves
Some investors choose to invest their cash into upgrading their properties; however, keeping an ample cash reserve in your account will help ensure security during market shifts. If tenants cease to pay the rent or property tax rates increase, the cash reserves could aid in paying operating costs for a few months or even longer.
The cash in your bank can be a great way to avoid needing to take on high-interest loans or leverage your property to finance repairs. Also, you’ll have cash in the event that you find a new investment opportunity and you want to take a deal right away.
Carry Proper Insurance
It is a given that having the right insurance coverage is essential to safeguard your assets. In the case of real estate investment, this is a requirement to have liability and landlord insurance and workers’ comp insurance when you employ employees. Based on the location you live in, you may also have to buy additional fire or flood insurance if your homes are situated in areas that are prone to natural disasters.
Examine these policies frequently and contact your insurance provider every couple of months to inquire about discounts, and then keep the records of these policies. Keep them in a spot where it’s easy to access. It’s recommended to insist that your renters be insured as renters, so that they are insured and protected.
Build Strong Relationships
It’s difficult to place a value on strong relationships, but having a professional network that can aid you in difficult times can provide a great deal of confidence. If you are in business, be sure to connect with attorneys, bankers, as well as real estate agents and contractors who may be able to provide information or advice during times of turmoil.
If you have tenants, it’s recommended to establish a solid connection with them. Tenants who feel taken care of will be less inclined to move out and are more likely to take care of the property. Making repairs promptly and respecting their space will go a long way toward building a trusting, professional relationship.