Diversification is vital for managing risk in real estate. When you limit yourself to only one type of property in one area, you're setting yourself up for disaster.
A balanced portfolio can help you survive natural disasters, economic downturns, and other unforeseen events. Whether you're new to property investment or have many years of experience, diversity is a key component of effective real estate portfolio management.
Read on for ideas and inspiration on how to expand your property portfolio.
Real Estate Portfolio Management 101
Knowledge is power when it comes to your rental property investment portfolio and is central to crafting a strategic approach. To succeed, you must first:
- Create a real estate investment plan
- Set SMART goals
- Decide on a strategy
- Assess your risk tolerance
With a clear plan in mind, you can make informed decisions when acquiring your next investment property. You should back this up with ongoing networking and research and stay informed about the latest investment trends and news.
Ways to Diversify Your Portfolio
The information you glean from the above sources will help you benefit from investing in real estate across a wide range of asset classes. These include REITs as well as commercial, industrial, and residential properties.
There are four ways you can diversify your property portfolio:
1. By Buying Various Property Types
Building a varied asset category through diversification is a pivotal investment strategy. The best way to diversify your physical assets is by buying different types of properties, like:
- Residential properties
- Commercial properties
- Industrial properties
- Non-institutional sectors
- Raw land
- Special-use properties, like churches or schools
A balanced portfolio gives you more options when one of your markets is struggling. For instance, right now, commercial properties are facing high vacancies across the USA, while residential rentals are booming.
2. In Different Geographies
Spreading your portfolio across different cities and regions helps you benefit from the best characteristics of each area. For example, residential properties do well close to employment hubs, while commercial properties fare best in city centers.
You should always consider up-and-coming markets when diversifying your portfolio this way.
3. Through Diverse Vehicles
There are ways to supplement your physical assets with less tangible ones. These include publicly traded real estate investment trusts (REITs) and private investment vehicles.
4. Using Alternative Strategies
Within each of the above investment options, you'll find even more choices. For example, REITs offer a choice between high- and low-risk investments. Residential properties diversify further into apartments, condos, multi-family housing, and short-term rentals.
A mixed portfolio allows you to generate long-term, stable returns.
Invest in the Future of Your Property Portfolio
Success in real estate investment requires a long-term commitment to real estate portfolio management using the right tools.
Real estate management software can help you calculate and maintain your return on investment across your portfolio for further analysis and growth.
The expert team of property managers at Kenny Realty can help you manage your residential properties efficiently for maximum returns. Get in touch to enjoy the peace of mind that comes from working with a team of seasoned property management experts.
Evan has been in the real estate and property management field for 6+ years. He is experienced in working with first time home buyers, is an Accredited Buyer’s Representative (ABR®), Seller Representative Specialist® (SRS) and Seniors Real Estate Specialist®(SRES®). He also works closely with Kenny Realty owners, getting their rental properties rented as quickly as possible. Evan is responsible for monitoring rental market conditions and advising our owners on market rates. He has outstanding communication with all clients he works with, keeping everyone in the loop at all times. He is the third generation of the Kenny family to practice property management on the peninsula.