How and Why should You Diversify Your Property Portfolio?
Real estate considers a steadier investment option as compared to investing in the stock market, mostly because it is backed by a physical asset; thus making it difficult to get deceived. Despite offering numerous benefits coupled with lower risk; not all real estate investment options offer equal opportunities. In order to be on top of the game and for steady growth, real estate experts suggest diversifying real estate portfolio across different layers based on asset class and geography. Diversification of property portfolio reduces risk exposure significantly and ensure growth. Let’s talk about the top ways to diversify your real estate portfolio that can help you have investments to fall back on, if one investment vehicle performs poorly.
How to diversify your property portfolio?
When it comes to diversifying portfolio within the same investment landscape, investing in products that differ from each other in terms of risk profiles matter the most. And one of the most common ways is to invest in properties that can be differentiated based on their asset class, location, types, size and income return. Let’s touch these sections one by one and see their importance for a property portfolio.
Diversify by asset types…
Investing in different types of assets is what makes real estate investment an exciting investment. A savvy investor chooses to invest in assets across various classes in order to mitigate the risk. You can select anything from single family homes to large apartments, from off plan properties to office units, and from townhouses to commercial retail outlets. It will maximize your returns because each property belongs to a different asset class and offers strong returns during different parts of market cycle. If one of the investment classes performs poorly then you will have other investments to fall back on. However, pro investors recommend having a well-balanced portfolio and invest in different things. If you will keep all your investments in one class, your portfolio will become riskier.
Diversifying by location…
Diversifying your real estate investment based on geographical location is another striking way to stay on top of the investment game. Several investors shy away from this due to being comfortable about certain regions and lack of knowledge about different locations. However, it is not that complicated – all you need is a team of pro **real estate agents **who understand the local market very well. By diversifying across different markets – you can draw maximum profit and hedge your bets against a correction in any market. It is because if one city or a location is experiencing a slowdown, another neighbourhood might be in limelight. On the contrary, if you have invested all your savings in one market and that market hit a slowdown – your entire portfolio will be in jeopardy. Diversifying across different markets ensure that your investment will grow tremendously over the years.
Diversifying by strategy…
A real estate investor can diversify his portfolio by changing the investment strategy and purpose. It is possible to diversify investment based on strategy, even if you play within a single geographical market. For instance, an experienced real estate agent can advise you to invest in off plan properties and to hold them for long at one location, while at another location, he may suggest you pursue a fixer upper and sell after refurbishing. Similarly, you can buy another investment property, hold it and rent it ahead instead of selling it in the short-term. Diversifying by investment strategy can be an ideal way to get a hedge against a downturn. If you are willing to create a real estate portfolio – you must work with industry professionals who can anticipate the future of certain properties, where you are interested to invest.
What are the advantages of diversification?
- When you learn to diversify your property portfolio based on type, class, location or investment strategy – you will be well-informed and can get access to better, more and viable investment options. However, you must be prepared to deal with the complexities that diversification brings along.
- Another advantage of diversification is that you can create a portfolio that addresses your all concerns i.e. monthly regular income and value appreciation in the long run. For instance, an average single family home at a good location always remains in demand and tend to have higher appreciation in the long run but generate less income as compared to a retail unit. You can diversify your portfolio depending upon your needs and requirements.
- Being human, we love to stay in our comfort zone and it applies to everything that we deal with in our lives. For instance, if you feel like investing in single family homes is your forte, you will continue doing it. However, there is an old adage that never put all your eggs in one basket and it still rings true. So, if you are ready to diversify – take the risk and invest in the next property type that is completely opposite to what you have already had. If you have residential properties – try investing in commercial units. If you have properties that generate income on regular basis for you – invest in property that will appreciate more with time. Depending upon your budget and risk tolerance, consider diversifying your portfolio.
Investment brings risk but achieving your investment goals requires you to learn the art of balancing. Choosing the right mix of investment, evaluating it on a periodic basis, and then making changes in your strategy is what makes a big difference to your outcome. Never be disappointed with your investment decision because if something goes down, it must come up sooner or later. The key is not to sit back and watch but to spread your investment across different layers. Start today – evaluate your investment portfolio and take notes. Discuss your findings with real estate experts and evaluate them for the potential pitfalls and the future outcome. Work with a team of experts and let them guide you to diversify your property portfolio to strengthen your growth. If you are planning to invest in ready-to-move or **off plan properties in UK **or anywhere in the world’s leading real estate markets, you can talk to our experts and we can help you devise an investment strategy.
Please submit your enquiry and a member of our team will get in touch with you soon.