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4 Ways to Diversify Your Real Estate Portfolio

Real estate is a strong investment and it’s considered as one of the safest ones. So, for real estate investors, creating and developing their real estate portfolio is a must – and as with any other investment, diversification creates more advantages.

Why diversify?

Despite being a steadier choice, not all real estate investments are created equal. Hospitality, for example, works best around a more relaxed community. Commercial properties, on the other hand, bring more profit to busier streets. Taking location, market, and long-term goals into consideration, diversifying your real estate portfolio allows you to mitigate risks and ensure ongoing and steady growth.  

Now that you’ve found out why let’s talk about the how:

1. Diversify by sector.

The multitude of asset types available in real estate is one of the things that makes it unique. To diversify by sector, you can dive into different residential, commercial, or industrial properties.

Residential

These can range in size, from a single unit to apartments. Residential real estate is a relatively safe choice as the demand for housing is steady. Unlike commercial properties, though, residential units tend to have shorter lease lengths, averaging 6 to 12 months.

Commercial

Commercial properties – office buildings, retails spaces, shopping malls, and more – typically have higher income potential. Leases for this type of property also tend to be longer, averaging 3 to 5 years.

Industrial

Industrial real estate refers to properties mainly used for manufacturing, storage, production and any other similar activities. Even longer than the lease length for commercial spaces, lease for industrial properties can go up to 10 years.  This entails more security and higher return. However, since these types of properties are typically bigger, they are less accessible to individual investors.

2. Diversify through location

A real estate investment’s success is highly anchored to its location, as real estate is hyperlocal. One city may be experiencing a boom while the other is currently at a slowdown. If you diversify across locations, you can use the ups and downs of various markets to your advantage.

3. Diversify by asset class

When investing, it is also important to understand human behaviour. Townhouses, for example, are more profitable in good times – when people tend to rent bigger and more luxurious spaces. Mid-rise apartments, on the other hand, may provide a more moderately priced place, for tough times when people need to downsize.

If you diversify across asset classes, your portfolio will be able to hold up in all parts of the market cycle.

4. Diversify by strategy

You can also diversify your real estate portfolio through diversifying your investment strategies. You can vary your hold time – have a property that you would buy-and-hold and have another that uses the BRRRR (buy, rehab, rent, refinance, repeat) strategy. You may also buy a property in anticipation of selling it for a higher price after a year or two.

Even within a single property type or geographical market, you could counter downturns by diversifying your strategies.

As the real estate market is cyclical, it is important to spread out your investments so you may maximize growth and potential. Start by taking some time to review your current investments and strategies. Take your notes and identify potential risks and benefits. Lastly, remember that in the long-term, diversification will contribute greatly to your investment’s strengths.

If you are planning to expand your real estate investment portfolio and are looking for the next  best property to purchase, the professionals from Buying Perth Real Estate are ready with a free consultation. To find out more, give us a call at (08) 6215 0200 or email us at clive@buyingperthrealestate.com

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