How to Diversify Your Real Estate Investment Portfolio

Diversifying your real estate investment portfolio offers many benefits. But, the biggest is that it helps minimize your risk to exposure. In other words, it helps place you …

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Diversifying your real estate investment portfolio offers many benefits. But, the biggest is that it helps minimize your risk to exposure. In other words, it helps place you in the best position to earn returns even when faced with risks like deadbeat tenants and property damage.

To help you in this endeavor, check out our list of the top 3 property/investment types that you should consider:

Multi-Family Properties

A multi-family property is a type of residential housing that has at least two units under one roof. Unlike the typical single family residential property, they not only carry less risk, they produce a higher cash flow  as well:

  • Reduce risk: The biggest risk, when talking about rental properties, is the potential loss of income due to vacancy or other circumstances. When this happens in a single family residence, you can have trouble attracting new tenants. Furthermore, if you don’t have a backup source of income, it’s possible that you could lose all revenue from the property. Multi-family properties, on the other hand, tend to have a higher unit availability which means they can generate bigger tenant pools. As a result, they can greatly reduce the economic loss from a vacancy.
  • Scalability: When you have several units in one building, you will receive multiples streams of revenue. This makes multi-family properties an excellent option for the investor who wants to scale faster.

Commercial Properties

Commercial real estate investing, on its fundamental level, involves buying, managing commercial properties and leasing the units to businesses. It provides investors with a number of benefits that include better leasing contracts, lower vacancy rates, higher income potential, and steady cash flow. But, as with anything else worth pursuing, it will take some hard work and effort on your part to master this type of investment. However, when done correctly, it can reap significant rewards and offers several benefits:

  • Less competition: Although there’s a lot to be said about commercial real estate investments, there are some investors who believe that it is out of their league. As a result, this type of investment presents a lucrative opportunity for investors to outshine the competition and increase their financial wealth.
  • Cash flow: The leases for commercial properties tend to be longer than those of residential rentals. Thus, it’s possible to capitalize on relatively reliable and consistent income. Further, commercial real estate tends to offer a better ROI than single family homes (between 6 and 12% versus residential properties that only earn between 1-4 percent.
  • Triple Net Leases: The general concept of this lease makes tenants responsible for paying not only their monthly rent but many of your buildings expenses (like taxes, insurance, and maintenance) as well. In other words, it can reduce the amount of money that leaves your pocket for operating expenses.

REITs

A REIT, or real estate investment trust, is similar to stock investments  in that they consist of common shares. The biggest difference between the two is that the value of a REIT is contingent on the state of the real estate market. That is, they are a part of the public and private equity stock of real estate companies that invest in mortgages, properties, and other real estate-related investments. They are an excellent choice for investors who are looking for diversification, regular income streams, and long-term capital appreciation.

To minimize risks and ensure success in the real estate investments, diversification is key. Leveraging the above property types will help you create a stronger, more balanced portfolio. Good luck!

Article provided by: RAM Real Estate Asset Management

 

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