In theory, real estate diversification is a no-brainer and common sense. Putting it into practice is another story! Real estate diversification often means exploring new investments you’re unfamiliar with. You may also find putting yourself out there on a deal may make you uncomfortable. For example, if you’re an expert in single-family rentals, buying a multi-tenant commercial property will be daunting.
As with any investment, research, make wise decisions, and protect yourself and your assets. Be sure to explore various types of properties in various markets.
Investing in commercial properties is an excellent option if you feel like you have been stuck in a residential property rut. Investing in a commercial property can be intimidating if you’ve never done so before. Many investors find the risk to be well worth the reward.
Commercial properties are typically more profitable than residential properties, with higher rental rates. In addition, commercial tenants usually pay the following expenses;
These expenses paid by the tenants help you keep your costs low and maximize your profit. There’s also less competition for investors who want to transition from residential to commercial property investments.
Investing in multi-family residential properties is a good idea as you grow your investment portfolio. Single-family residential properties can bring in a consistent income, but you risk significant losses if your property becomes vacant. Multi-family residential properties can help you maintain consistent profitability even during months when you have vacancies.
Multi-family residential properties appeal to a wide variety of prospective tenants. You can accommodate vacancies and evictions by generating continuous demand for your property.
If you want to benefit from real estate investing without the hassle of hands-on property ownership, you can invest in Real Estate Investment Trusts (REITs).
With REITs, you invest your capital, and the company that owns the REIT handles every aspect of property management and maintenance. Since REITs bring in regular dividends, you’ll enjoy a consistent passive income by adding this option to your portfolio.
You don’t need a lot of money to invest in REITs—some of the REITs we have found online start with a minimum investment of $1000. Even if you plan on hands-on investing, such a small sum makes sense to own a few REITs.
Also worth checking out is the REIT dividend all-star list. The REITs on the all-star list have consistently paid dividends to investors. This resource can help you choose the right REIT to invest in.
A joint venture is a partnership in which two people decide to purchase an investment property together. It can help diversify your portfolio.
In a joint venture, there are generally two categories of investors: the money partner and the active partner.
The money partner supplies the funds needed for any purchase, from the down payment to qualifying for the mortgage.
The active partner does all the necessary repairs and property management.
Splitting the responsibilities between two investors helps reduce your overall investment risk, which is another form of real estate diversification.
Look online or in our private Facebook group for investors who are ready and willing to partner with someone on a new project. The group can be found here.
Real estate Diversification Can protect your investments.
When it comes to real estate diversification, you don’t have to worry about doing everything at once. Start with small steps to broaden your portfolio and gradually build up to increased diversification. Pushing yourself outside of your comfort zone through real estate diversification will make you a better investor in the long run. And it’ll keep you and your investments safe during headwinds or sudden downturns.
We suggest the following to diversify your real estate investment portfolio for maximum exposure;
Investing in real estate can be risky, but the risk is greatly minimized when you learn to diversify your portfolio.
