Start by exercising common sense and gathering as much information about the local market and the general economy in addition to the specifics on an interesting property. Study the numbers on rates of new home construction and the ratio of new to existing property sales. Narrow down to your local market(s) by looking online at existing comparables, but also talk with other local property owners about their concerns and plans.

When building new structures, manage risk by reviewing trade area demand — by demographic and daytime population for commercial structures, for example. Look also at site characteristics and examine local competition and contrast with regional differences. Take some time to find out about upcoming environmental regulations.

Be sure to set aside the needed amount for insurance, and err on the side of too much insurance rather than too little, if minimizing risk is an important goal.

Go into a deal with the maximum available capital by not spreading your resources too thin. Keep borrowing low and avoid ARMs (Adjustable Rate Mortgages) unless they’re longer than three years and you expect to sell well within that period. ARMs are inherently higher risk, and the ‘interest only’ type even more so. Rates tend to rise more quickly than they fall, over the long term.

If you have an ARM and rising monthly payments occur, due to interest rate increases, while the market price is dropping (as may soon be the case), consider selling. Even stocks have to be sold sometimes during a period of declining prices. Capital preservation is important for long term investing, and part of that involves keeping liquid during a ‘market correction’.

Some lenders allow borrowing more than 100% of the value of the property. Unless you can use the extra cash in a way that more than compensates for interest and other charges, that’s burdensome debt.

Take the time to seek out trustworthy and competent people — don’t settle for an uncooperative or arrogant Title company or an unreliable contractor because you’re busy. Think in terms of long term relationships. Otherwise, the long term will involve counting financial losses.

Risk can be spread by forming partnerships and, in come cases, by incorporation. Incorporation can allow you to separate personal from business assets, protecting you in case of severe decline. But there are limits — you don’t automatically get to walk away from debts by being incorporated. Partnerships though, if you can find reliable and compatible individuals with whom you’ll feel comfortable over the long haul, can strengthen your position.

Partners can help fill in gaps in your knowledge and experience, provide additional capital and someone to bounce ideas off of. But choose carefully. Differences of outlook can lead to stagnation when it comes time to take action. Remember, risk can never be reduced to zero.

When first looking for property you have to consider the amount of ready cash available, the state of the current market, as well as your own level of experience with the many aspects of investing.

The first lesson of risk management is: know the law. Whether a novice or a savvy investor of long experience, few things can put your investment at greater risk than ignorance of the rights and requirements of regulations. No need to become an attorney, but a working familiarity is a must.

After investigating the current market — what’s available at what price, and what’s the current level of buyer interest — judging the likely future is required. Property values have been rising in most markets for several years. In a rising interest rate environment, that can’t last forever. No one knows with certainty how long the trend will continue, but you can look at some signs.

Is the economy in general still on the upswing? Are employment prospects good for most individuals? What is the rate of new home construction, relative to the last five years? All these and more are good indicators of whether property values are more likely to continue to rise, level off, or even see a correction.

Once you’ve purchased a property there are several ways to minimize the risk of seeing your investment wind up ‘under water’. At the moment of purchase, make every effort to invest in a large down payment. Seriously consider putting in at least 10%. You’ll create instant equity and usually get a lower interest rate.

That level of initial outlay decreases your liquidity — you have less cash after the deal is closed — but there are few alternatives that have the return rate, low level of risk, and degree of capital appreciation of a real estate investment.

When looking at funding options, consider how long you intend to keep the property. ARMs (Adjustable Rate Mortgages) get you in with less cash and an attractively low relative rate. There are 1 year ARMs, 5 year, even 7 year — the number signifies how long the offered rate is good for, after which the lender adjusts it according to prevailing interest rates.

But if you intend to keep the property longer than the initial period, you can see that attractive rate climb several percentage points. Unless you sell, or have paid down the principle substantially within that time frame, you can see yourself saddled with much higher monthly payments.

At the same time the ARM rate is going sharply up, property values are under pressure to level off or even decrease — because of the rise in interest rates. Your investment gets hit twice. Of course, it’s possible for rates to go down, but that’s less common and refinance is usually toward a fixed rate, in those cases.

There are insurance options that can cover the increase in payment in such scenarios but if you pay more than a couple of years of premiums, they are usually not worth the extra outlay. Better to use the extra funds to pay down the principal by making more than twelve annual payments, or paying more per month than the minimum.

If you can’t come up with a large initial down payment, weigh the value of continuing to rent versus any tax break you get from owning a property acquired with low or no down payment.

So, invest as much as you can up front, make at least one extra payment per year, lean toward fixed rate mortgages of the minimum length you can afford. A 15 year mortgage pays down the principle quicker, so you spend less on interest, increases your equity rapidly, and usually carries a lower rate.

Take a long term view; real estate is still one of the least risky, highest paying investments around.

What all these numbers suggest is that real estate investments have seen phenomenal growth in recent years. But with rapid increase in prices always comes increased risk. The higher the value of an asset the greater the potential for loss. Fortunately, for every form of risk there’s now an accompanying type of insurance.

The most common forms that benefit the investor/owner are title insurance and liability insurance.

Title insurance is designed to cover any lapses that may have occurred during the title search, prior to closing. Title companies search databases of public record and other sources to ensure a property is legally free of encumbrances. I.e. title can be legally passed to the new owner.

But like any human research effort, time and resources are limited and errors can be made. Public records databases are imperfect and title companies, though rarely, can fail to uncover a past tax lien or miss the fact that the adjoining strip of land is actually part of the adjacent property.

Title insurance covers any potential economic loss that results of these errors, up to a specified limit.

Liability insurance is intended to cover injuries to another party occurring on or as a result of using the property. When a salesperson or visitor steps onto the property and falls from a front deck because of a loose board, or any of a thousand other causes, liability insurance pays for medical bills, settlement of suits, etc. Again, up to a contractually specified limit and for a normal range of events. What constitutes ‘normal’ is what lawsuits are all about.

More extensive, and more expensive, forms of insurance are available for the dizzying variety of risks possible. Hazard insurance covers earthquake, tornado and hurricane, flooding, fire (natural), and dozens of other disasters outside human control. Damage from wind or freezing can be covered, too.

Alongside ‘natural disaster’ insurance are policies to cover man-made events: chemical spills, human caused fires, electrical failures, and on and on, endlessly. Insurance can cover damage or loss from vandalism or theft, faulty plumbing or wiring, even large appliance failure.

For landlords there are additional policies to cover the risk of rent interruption from non-payment, damage making the property unhabitable, or abandonment.

Naturally, all these insurance policies come with a price, which varies according to amount covered and deductible desired. They’re also invariably accompanied by limitations that restrict payment — for zoning variances, environmental conditions, negligence, and a host of other circumstances. As with any investment, shop around — you’re not required to use any particular company the agent or title company recommends.

You are required, though, to get one form of insurance that doesn’t benefit you at all. If you acquire a loan to finance a property purchase, the lender will require mortgage insurance — which pays the lender, not you, in the case of default or disaster.

Definitions vary, but marketing is roughly the development and execution of a strategy to sell something — which includes research, advertising, promotion and sales.

Good marketing starts with good research. Finding out current prices for comparable property is essential, but there’s also a time factor involved. Real estate, compared to most other investments, is a longer term investment. Stocks can be sold in minutes, a property takes weeks at best to rollover.

That means it’s important to know local market prices before the property is purchased, while it’s being prepared and advertised, and all during negotiations, some of which go on for weeks or longer.

You need this data in order to judge whether the current price is one which allows you to turn the property over at a profit, but also in order to know whether and where to compromise during negotiations. The stated price of a property, after all, is only one factor in the total. Are you going to pay for those needed repairs or does the buyer? And who will pay which, and what percentage of, closing costs? These numbers can and will vary depending on local market conditions, which can only be known by good research.

Advertising, too, is a key part of a marketing strategy. You need to attract as large a pool of real potential buyers in order to create a competitive bidding scenario. Those ‘just looking’ don’t count as real potential buyers, especially if they don’t have solid financing. That’s another research item for the list.

Advertising, like most business today, has expanded far beyond traditional boundaries. Word of mouth is still helpful, as are local newspapers and specialized trade publications, but the added 800-pound gorilla today is the Internet. With Local Search and new image library features, most search engines play a far larger role than in years past. And that role is growing.

Internet sites devoted to real estate investment have grown dramatically in the past few years, and show no signs of leveling off anytime soon. For Sale By Owner (FSBO) sites, realtor specific sites showing properties, mortgage financing and a dozen other categories have blossomed on the web.

A good marketing strategy will take advantage of that and devote considerable resources to advertising on sites with good traffic (the amount of which can be discovered by — you guessed it — research). Take advantage of all the technology available and add clear interior and exterior photos, 360 degree views, and video of the property and the surrounding area.

Two of the key benefits to having a good marketing strategy is the ability to move inventory and control costs while doing it.

In order to be a successful investor you have to be able to find a property that can be turned over in accord with your time table and at a profit. Even long term investors need to find properties that are undervalued, then promote and sell them for more than their accumulated costs. A good marketing strategy is essential for achieving those goals.

Assuming the property contains wood, first and foremost is a separate termite and pest inspection. Most ‘home inspectors’ don’t check for this, concentrating instead on mechanical and others aspects. Termites, carpenter ants, even mice can weaken walls and floors, chew through wiring, and ruin attics and shelving.

Professional inspectors check every aspect of a property and structure.

Starting with the foundation, they look for large cracks (almost all have minor ones), check for level ground, and influx of water. Evidence can show up as efflorescence — a white powdery material which indicates penetration points, mold or mildew (black stained areas). Some will use lasers to check level and cracking and some even use meters to check for radon gas concentrations.

Houses sit on top of foundations and that flooring has to be inspected for proper joints, angles, and materials used. From those floors rise walls which are similarly subject to incorrect framing and potential water damage. Inside the walls, plumbing and electrical systems are inspected for damage, non-code compliant construction, or simple age or wear. Any leaks are noted and pipes inspected for rust, lead, or other chemical concerns. Flow rate and pressure are sometimes measured.

Electrical systems get a thorough review, checking for faulty wiring, uncovered switches or receptacles, incorrect grounding, inadequate circuit breakers, or bad GFCI trips. The latter are those little red buttons often seen in the middle of outlets. They are somewhat like miniature circuit breakers built into the receptacle itself.

Working up to the attic, framing is checked for angles and strength and the area checked for air or water leaks or damage. The underneath of the roof is examined for tears or holes in papering and proper seal where vent pipes protrude outside.

Up on the roof the inspector will check for holes, loose tile, bad flashing or any other weakness that leads to lack of protection against the elements.

Around the house outside all faucets are tested for leaks and proper flow, inside all heating and air conditioning systems will be checked for duct leaks, filter condition, and adequate capacity and flow. Thermostats get a thorough going over.

Any inbuilt appliances, such as stove and water heater are checked for compliance with standards. Installed propane or wood stoves and piping are checked for physical integrity and proper function.

Carpets are checked for inappropriate levels of wear or damage and tested for mold or water damage. Any paint damage, particularly due to water infiltration, get noted.

All these items, and many more, are noted on a report available to whomever ordered and paid for the inspection. To the potential buyer, defective items can be used as bargaining chips when negotiating price and other terms of sale. But the inspection can also benefit the seller by allowing for the opportunity to repair or improve items before putting the property on the market.

To either party, an inspection for a few hundred dollars can save thousands during the process. Information isn’t just power, it’s money, too.