How can real estate investors kick risk to the curb, and maximize the upside?
Few, if any investments are 110% risk free. Yet, the most admired billionaire investors know how to cut that exposure, and keep the green coming in no matter what the forecast is. Here are six ways to avoid losses even in the worst case scenarios, and stay flush while others are floundering to figure out their next move…
1. LLCs
If you are investing in real estate you need to incorporate. Period. There are no good excuses not to. Filing an LLC can cost as little as around $100, and can be done online in minutes. It is also the door to more potential tax breaks, and absolutely key to opening more doors to real estate funding today. Do it now.
2. SD IRAs
Stocks are taking a beating, and Harry S. Dent who successfully called the previous crashes expects the Dow to tumble more than another 50%! Consider rolling over existing retirement accounts to self-directed IRAs and reallocating those funds in direct real estate investments. If you don’t have one talk to your tax pro about which options can allow you to contribute the most, and reduce your tax burden the most this year. You still have till April 15th to get the break for 2015. IRAs are also typically protected in bankruptcy and judgments. So if things really get ugly out there you still shouldn’t lose your IRA, or your real estate holdings.
3. Stay Liquid
Liquidity is key to safely and successfully navigating the unexpected in real estate according to billionaire investor Sam Zell. If you’ve got liquidity you can sail through anything. Bulk up on cash by wholesaling properties, and using 100% transactional funding whenever possible.
4. Due Diligence in Advance
The more due diligence investors do in advance, the less cash they’ll burn, and the better their profit margins. It only takes seconds to Google potential vendors, and look up property records from your phone. Compass Land and Title in Florida now also recommends sellers obtain a title search prior to listing properties to avoid any challenges during transactions.
5. Multiple Exit Strategies
You already know not to get into a deal until you know how you are going to get out. Of course that first exit plan, or resale buyer or tenant doesn’t always work out. If that was your only exit you could be in some hot financial water. It could tank everything else you are doing. Instead go in with multiple exit strategies for every deal. If you can’t wholesale it can you rehab it? If it doesn’t sell retail can you rent it?
6. Build that Buyers List
Eventually you are going to sell that property to cash out and tally your total net gains or loss. Savvy investors, and especially real estate wholesalers build those buyer lists in advance. Register everyone interested in purchasing a property. Get them to provide mortgage pre-approval letters or Proof of Funds (POF) letters so you know you’ve got a qualified prospect. If you are low on buyers consider collaborating with other investors. Avoid long chains, but do know that there are hundreds of cash heavy investors out there desperate for deals.
Have any tips of your own to add? Let us know on Facebook or Twitter…
Authored by Best Transaction Funding - the leading source of transactional funding and hard money loans for real estate wholesalers in the US, where 100% financing, and saying “Yes” is what we love doing all day long.
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