As any individual who has been in the real estate business for some time can confirm, even the most successful ones have a property in their portfolio that is risky and because of which they might experience loss at some point. However, in this dynamic world, that same property can also earn that person a hefty sum which is a part of the excitement which makes people opt for this profession.
Be that as it may, somebody who wants to be prosperous in the real estate arena has to mitigate risk and not to allow for one failure to lead to an irrecuperable loss of money. This is why portfolio diversification is a crucial strategy for increasing one’s prospects in the real estate world. With that in mind, here are the top 5 suggestions for you to consider when it comes to diversifying your real estate portfolio.
Check out online real estate platforms
Online real estate platforms are the embodiment of diversity since your choice is not limited to a particular property or investment type, at least with most of them. For instance, if you have only been interested in residential property so far, you can consider investing in commercial or both through one of the platforms. They are also involved in most investment types, such as debt and equity.
Some of the platforms allow lower investment minimums for accredited investors while those which welcome non-accredited investors have different potential than those who only take accredited ones. These platforms are also a good choice for those who want to work on their portfolio but don’t have that much time to oversee new projects. However, that versatility means that you need to spend some time researching different platforms, their options, and investment minimums to make sure you come up with an optimal solution. Be that as it may, they are definitely an option worth looking into.
Consider private REITs
Private REITs (Real Estate Investment Trust) are essentially funds that own and manage real estate mortgages and properties. If you are interested in investing in a fund of this type so as to diversify your real estate investment portfolio, you need to look into each in detail because individual REITS dictate their own terms and each has a different potential which means that you need to find one which would fit your needs, plans, and financial plans.
In general, the funds are legally obliged to ensure that at least 75% of their income comes from real estate and to also invest that same percentage of the assets back to real estate. As for the investment minimums, as mentioned, there is no strict amount but it is not low, and neither are the fees. Another thing worth noting is that investments are usually illiquid. All in all, if you have done your research and are prepared to invest a bit more, private REITs might be a good option, especially if you are low on time.
Spread to international markets
In the world of real estate, it is not wise to confine your business to one state and let alone one neighborhood. The reason is simple: what today seems like a promising neighborhood that young middle-class families are moving to, in a few months those prospects may change because, for instance, the location of the new elementary school which was planned to be built in one place, may be postponed or relocated altogether.
You can mitigate such risks by dipping your feet in foreign markets, especially exotic ones, such as Indonesia, and take the chance to be present when other investors discover its benefits. Naturally, you would need to look into laws and regulations related to ownership since you are a foreigner so it’s best to hire experienced local experts to make certain you are acquainted with all facts. This is a good opportunity to also learn about your rights and obligations as a foreign investor.
Related: Best Places to Invest in Real Estate: Going International
Try your luck with house flipping
If you are up for a challenge and an addition to your real estate portfolio which would keep you actively engaged, you should think about house flipping. The idea behind it is that you purchase a property at a lower price with the aim of selling it fast for a larger price and making a profit from that difference in prices. The trick is in the networking since you have to have your ear to the ground to know that a fixer-upper is up for a sale so you can react quickly and use the chance to make a profit.
You also need to be prepared for some minor renovations because some of these houses may have lower prices because they need some work done on them. What’s important is to make the right call when it comes to choosing a property and finding the right measure in terms of investment in renovations. House flipping offers exciting prospects and it is perfect if you have enough time and good connections.
Go for private equity funds
How private equity funds function is that different investors accumulate their money together to make investments. This investment model usually implies high investment minimums, which is something you need to have in mind because it is important for your decision to be able to fit into your budget. Also, considering that there is a manager who invests and oversees things instead of the fund’s members, you should note that an annual management fee applies.
All things considered, if the budget you planned to allocate on your portfolio diversification is perhaps a bit modest, you would need a more active approach and to do thorough research on the different investment potential and investment opportunities that individual private equity funds offer. If you find a solution that fits your budget and your wishes, you may have a lot of opportunities to expand and diversify your portfolio.
Wrapping up
Whichever of the strategies you choose to diversify your real estate portfolio, as mentioned several times, you need to put some time and effort into investigating all options so as to avoid mistakes and ensure you are investing your time and money in the best possible way. You need to set your budget firmly and to be realistic with the time you have at your disposal before you start looking into investment minimums or annual fees. Once you are certain you have covered everything, it is time to pluck up the courage and start your way towards greater success.
This blog has been contributed by Jacob Wilson.