Benefits of Diversifying Your Real Estate Portfolio

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. Consider networking with experienced investors to gain insights and strategies that can enhance your approach. Additionally, leveraging resources such as seminars and online courses can further refine your understanding of the market, ultimately unlocking multifamily investing in Canada. By staying informed and adaptable, you can navigate the complexities of the real estate landscape with confidence.

Commercial Real Estate Investing

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;

property taxes
property insurance
maintenance costs
monthly rent

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.

Multi-family residential

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.

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REITs

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.

Joint Ventures

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.

Money Partner

The money partner supplies the funds needed for any purchase, from the down payment to qualifying for the mortgage.

Active Partner

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;

Buy single-family homes in different neighbourhoods.
Buy multi-unit residential homes in different neighborhoods
Buy commercial multi-family properties
Considering purchasing a hand-off investment like a REIT
Lastly, invest with a joint venture partner

Investing in real estate can be risky, but the risk is greatly minimized when you learn to diversify your portfolio

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Frequently Asked Questions

What is the 3-3-3 Rule in Real Estate?

The 3-3-3 rule in real estate is a practical guideline designed to help investors and buyers evaluate opportunities and mitigate risks before committing. It typically involves three key checks: reviewing the property's price trends over the past three years, ensuring you have at least three months of living expenses saved as an emergency fund, and aiming for a down payment or initial investment of around 3% (or verifying if rates are under 3% for affordability). This rule promotes thoughtful diversification by encouraging a balanced approach to market analysis and financial preparedness.

What is the 4-3-2-1 Rule in Real Estate?

The 4-3-2-1 rule is a benchmark for assessing rental property performance and building a diversified real estate portfolio. It suggests targeting a 4% annual cash-on-cash return, 3% annual property appreciation, no more than 2 months of vacancy per year, and maintenance costs under 1% of the property value annually. This framework helps investors screen deals that support steady income and growth, making it ideal for spreading risk across multiple properties.

What is the 5% Rule for Diversification?

In the context of diversifying a real estate portfolio, the 5% rule advises limiting any single investment—such as one property or asset—to no more than 5% of your total portfolio value. This prevents overexposure to any one deal and promotes balanced growth. For real estate specifically, it can also target a minimum 5% rental yield combined with appreciation to ensure viability, helping you build resilience against market fluctuations.

What Does Warren Buffett Say About Diversification?

Warren Buffett famously quipped that "diversification is protection against ignorance. It makes little sense if you know what you are doing." He advocates for concentration in high-conviction investments when you're well-informed, but for most investors, especially in real estate, measured diversification—like spreading across property types and markets—reduces risk without diluting returns. This philosophy underscores why incorporating real estate into a broader portfolio can safeguard against unforeseen downturns.

What is the 7% Rule in Real Estate?

The 7% rule is a quick screening tool for rental investments in a diversified portfolio: annual rent should equal at least 7% of the property's purchase price (e.g., $14,000 yearly rent for a $200,000 property). It helps identify cash-flow-positive deals that justify the investment, providing a buffer against expenses and vacancies while supporting portfolio stability.

What is Dave Ramsey's Mortgage Rule?

Dave Ramsey recommends keeping your total mortgage payment (including principal, interest, taxes, and insurance) under 25% of your monthly take-home pay to avoid becoming "house poor." This conservative guideline supports diversification by ensuring housing costs don't crowd out investments in other real estate assets or opportunities.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

Written by

LendCity

Published

December 17, 2025

Benefits of Diversifying Your Real Estate Portfolio in Canada