How to Diversify Your Investment Portfolio?

No matter how you invest your money, it is always a wise idea to have multiple streams of income to maximize your profits while minimizing the risks. Although we are firm believers in real estate investments, it doesn’t mean that it should be the only type of asset in your investment portfolio.

Real estate is, by nature, a cyclical industry. In the long term, it is one of the best ways to create wealth, but it is not a smooth road. No matter your location, the type of asset you invest in, the global economic climate, etc. you are bound to encounter sluggish market conditions or assets that are not performing as well as expected.  

Thankfully, there are multiple ways you can diversify your investment portfolio to ensure that you always have some income coming in.

Make sure your real estate investment portfolio includes different types of assets

Rental properties

Being a landlord is one of the most popular ways to establish a steady stream of income from real estate investment. Rental properties come in many shapes and forms, from single-family and small residential buildings with 2 to 4 units to large apartment communities. They can be located in different areas to minimize the downsides of a local market.

Rental properties are an extremely versatile asset. As a landlord, you can choose to lease your properties outright to renters. However, you can offer a lease or rent-to-own situation for people who have struggled in the past but still have the dream of homeownership. Finally, you can also tap into the short-term market and, depending on the location of your rental property, dive into vacation rentals.

Rental properties are an excellent way to create a source of passive income in your investment portfolio. Although being a landlord can be a time-consuming business, hiring a good property manager can make it a breeze.

House flips

Flipping houses is another common way to invest in real estate. Unlike rental properties, house flips, if done right, are a great way to get a quick return on investment. The process is simple: you purchase a property in poor condition below market value, renovate it, and resell it for a profit. 

It’s a great opportunity if you have the knowledge to recognize properties that can make a good house flip and the professional connections to ensure the construction job will be done right and for the right price.

They are typically more involved than rental properties as you need to be on top of each step, from finding the building to controlling finances and reselling the property.

Commercial properties

Commercial properties can be intimidating for beginner investors. They are typically significantly more expensive than residential buildings and may require industry-specific knowledge. You will need to research the pros and cons and may need to start your career by associating with more experienced commercial investors.

However, the rewards are significant. Commercial buildings usually have a better return on investment opportunities than residential ones, but you will need a good team by your side to guide and assist you.

A well-balanced real estate investment portfolio should include several types of real estate assets. It is also a good idea to keep track of the hottest real estate markets to know where to invest next and avoid the downfalls of local markets.

Invest in other assets besides real estate

Retirement plans

You should invest in a retirement plan of your own even if you are self-employed (i.e., if you are a full-time real estate investor). It is income that you will need to wait a while to receive. However, some plans, like IRA, 401(k), and 403(b), come with significant tax benefits. Talk to a financial advisor to decide which plan may be the best fit for you and which ones you may be eligible for.

Franchise

Franchise businesses are often great money makers for those who need more immediate results from their investment efforts. Not all franchises are created equal, so you will need to do your homework to decide which one is the best for you in terms of expected ROI and time-commitment

Stocks and Bonds

Investing in the stock market has its upside and its downsides. However, if you are not risk-averse and are willing to wait for some long-term returns, it is a great way to grow your investment portfolio. 

No matter how much money you have to invest, the old saying always rings true: avoid putting all your eggs in the same basket. Diversifying your investment portfolio is the best way to grow wealth in the long term without taking undue risks. When choosing a new real estate investment, remember to check the big picture and examine how it will fit in your real estate portfolio. Although we remain convinced that real estate investment should be on top of everybody’s mind, you shouldn’t neglect other types of assets as well.

What is your favorite diversification strategy when it comes to your investment portfolio?

 

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