These risk reduction strategies will help the real estate investor to minimize the chances of a losing investment. The ability to do economical remodel or upgrades to increase rents is also a good indicator for the purchase of a rental property. Often, landlords will become tired of marketing and they will settle for acceptable rents, even if they are below current market rates. This skews some of the valuation and ROI calculations, but in a good way if you see it. When there is more rent available, actual rents skew the calculations in the wrong direction. If you’re relatively certain that you will only hold the property for 10 years or less, look at an Adjustable Rate Mortgage, ARM for that period. It won’t reset until you are in the sale process, or ever if you sell sooner. You will get a lower interest rate and higher cash flow. Sometimes lowering your return on cash investment is still a better solution. High debt can backfire, particularly in a period of higher vacancy or credit loss. Raising your down payment will take more cash upfront, but it will reduce the amount financed and lower payments. When payments go down, cash flow goes up. Refinancing is always an option later. The right improvement decisions can also attract better tenants and justify higher rents. The ROI on the money invested in the improvements can be attractive. Recent surveys show older and younger home buyers and renters alike want to live closer to city centers. These are often older neighborhoods and improving an older home can be profitable.
