Diversification is important in any investment strategy and real estate is no exception. Although real estate presents great money-making opportunities to diligent investors, there is always a risk that the market can take an unexpected turn and you could lose money. Diversifying your portfolio will help you neutralize any losses if one of your investments takes a hit. Steven Taylor Taylor Equities is an experienced landlord with years of experience in the Southern California real estate market. Here are a few important tips for how to diversify your real estate portfolio.
Invest in Different Locations
Every real estate market has its boom and bust cycles and diversifying the neighborhoods or cities you invest in can help hedge against the risks of a downturn. Say you go and buy up a bunch of properties in your neighborhood because prices are going up, but those prices are in a bubble. When that bubble bursts, you may be stuck with a portfolio of properties that you can’t move – whereas if you had purchased a variety of properties across different neighborhoods, you may be better equipped to handle the loss. Don’t get in over your head and invest in locations you aren’t familiar with. But putting all your eggs in one basket can often lead to problems down the line.
Invest in Vacation Rentals, Multifamily and Commercial Properties
Single-family homes are not the only type of property out there. If you’re serious about building a real estate portfolio, you should consider investing in vacation rentals, multifamily homes, and commercial properties. These types of deals often require a larger investment and may not be as feasible for local mom and pop landlords. But those who are serious about the business should look into these lucrative property classes. Forbes recommends that serious investors should put as much as 60% of their portfolio into multifamily properties because you can often double or triple your cashflow with the same square footage as a single-family home.
Invest in REITs
Keep in mind that you don’t always have to invest in a physical property to receive a return from real estate. Real estate investment trusts are companies set up to manage income-producing real estate, in which investors are permitted to own shares in like stocks or bonds. The benefit of REITs is that they provide consistent returns and are managed by other investors, so you can reap the benefits without putting in the sweat equity. REITs are good for diversification because they are proven to show a low correlation with other sectors like the stock market and can provide consistent returns, even when some of your other investments are suffering.
Diversification is important no matter what market you’re investing in. These are the methods that have helped Steven Taylor Taylor Equities and other real estate pros build a robust portfolio of properties across a variety of locations and property classes. Use these simple tips to help you diversify your portfolio.