Regardless of your investment preferences, whether they are primarily geared toward corporate stocks and bonds or real estate based, diversification is the best road to take to insure asset protection during volatile marketplace upheavals. In other words, as the old and time-proven saying goes, “don’t put all of your eggs in one basket.”
Best advice to any investor; know the marketplace you are playing in. If you are not thoroughly familiar with the rules of the game, you are assuredly destined to lose.
Certainly, no one, no matter how skilled an investor one may be- and we have said this time and again- knows everything, and if you are playing the real estate game, incorporate a team of specialists as your guides and advisers. As any successful investor will assure you, it takes a team effort to succeed.
There are many ways to diversify a real estate portfolio, and the investor should –after careful analysis – choose the path that best suits present and future market conditions and projections.
Among the many and most common real estate diversification investments are:
- Purchasing and selling or renting high-end properties; estate homes, luxury condos, etc.
- Buying, repairing and renting or selling handy-man specials
- Apartment complexes
- Condo conversions
- Real Estate Investment Trusts (REITs)
- Real estate mutual funds
- Real estate hedge funds
- Real estate related stocks
- Raw land
- Commercial property
Diversification allows the investor to ride out a down cycle in a particular market, with asset loss minimized or even neutralized by an up cycle in other real estate investments.
Take for example, what is happening in today’s marketplace. An investor whose specialty is strictly geared toward the buying and selling of single-family homes is faced with falling property values due to a huge glut of available inventory, mostly consisting of distressed properties, and with no immediate prospects of this inventory diminishing to any great degree for some time.
However, an investor for example, who buys and sells homes and has additionally invested for the long term in rental properties, including single family residences and apartment complexes, will have the benefit of continued cash flow from rentals.
Investors who have concentrated strictly on one aspect of real estate investment are in trouble when their investments hit a severe down cycle, since these investors have no immediate options to fall back on.
The investor with a skilled real estate agent as part of his/her advisory team is in an excellent position to intelligently forecast near future market trends in some instances, and make the kind of investments that will maximize revenues and minimize loss.
Although these examples are just simplified versions of complex issues, the wisdom of diversification is obvious.