Investments come in all shapes and sizes. The investors who see the most profit, boast a diversified, and intelligently put-together portfolio. In this post, we will explain exactly why you should diversify and what you can do to get started!
Why Should I Diversify?
When you diversify your portfolio, real estate or otherwise, you are aiming to lower your risk, while maximizing your return. Investors will agree that a diversified portfolio will yield the results you are after faster, and with the least amount of risk. You should have a plan in place and specific goals in mind. As the market changes, so should your strategy. It is important to be flexible so your investments can change as the market does.
What Should I Invest In?
- Rental Properties – Owning a single or multi-family property is a great way to provide additional income. Do your homework on being a landlord or hire a property management company to help you navigate the process until you get the swing of things. One tactic many people use is to purchase a property with up to 4 units, living in one and renting out the other 3. A property with 4 units or less will still qualify for a residential loan. The great thing about rental properties is that you can buy 1 or 10. You can start small, and grow it into an empire, or simply own a rental property that pays for itself. Many people do this with their future retirement homes.
- Fix and Flip Properties – Flipping requires a lot of experience, knowledge and math skills. Many people dive in after watching too much HGTV and get in over their head. If you choose to flip homes, it is wise to have a construction and real estate background. You will need to accurately price repairs, project times and market fluxes. Many people choose to work with a partner. One person being versed in real estate, the other versed in construction.
- Commercial Properties – Commercial property investment is often over-looked by new investors. It can be a great niche with low vacancy rates if you are in the right location. There are also great tax breaks that come along with commercial property investment. There is less competition and a great opportunity for continual cash flow.
- REIT’s – Or a “Real Estate Investment Trust,” is similar to a mutual fund, except the trust invests in real estate. They purchase both commercial and residential properties. This is a great option for an investor looking to diversify in more of a hands-off investment.
- Vacation Rental – With sites like Air BnB, renting out your home to travelers has become much easier, There is a bit of hands-on maintenance involved, however, the right property can see great profits over the course of a month. Renting your home out only 15 days of the month at $150 per night equates to $2250 a month!
- Niche Real Estate – This includes things like trailer parks, storage units, and land (often leased for recreation, parking, etc.) These niche investments offer low competition and high returns.
- Try to own in different parts of the state or even the country. This way you won’t have to deal with all your property succumbing to geographical market shifts.
- Crowdfunding services can help to connect developers and investors. These services are typically for people with higher incomes.
How Do I Start?
Start planning right away. Think ahead and set your goals. What are you trying to achieve with your portfolio? Consider up-and-coming areas and do your research! Follow your market trends and keep yourself abreast of major real estate transactions in your area. Look into future zoning and connect with professionals who can assist you in finding off-market deals.