As a landlord, you already know that it is your job to think, act, and operate as a real estate investor more than simply a landlord. That being said, you also know the inherent value and importance of having a diverse investment portfolio. In fact, that is probably the primary reason why you begin investing in real estate in the first place. However, it is not enough to diversify your overall portfolio by incorporating some real estate. Instead, you need to look at your real estate investment properties as an entirely separate portfolio requiring its own diversification.
In today’s post, I’ll show you why it is so vital that your real estate portfolio is diverse, as well as, show you some of the best overall strategies for diversifying your portfolio without creating a mountain of work for yourself. If you want to make sure that you aren’t exposed to unnecessary risk with your Sacramento properties, you owe it to yourself to follow these tips.
Why Diversification Matters So Much For Sacramento Real Estate Investors
Obviously you already know that diversification in assets and investments is of the highest priority for any investor because it allows you to protect yourself from losing everything should your investment become worthless. For example, if you only invest in the stock market and the stock market crashes you could lose it all as millions did during the last recession. However, if you had also invested in sectors that thrived, you would have been protected.
The same concept applies to your real estate investment portfolio. You need to make sure that each property adds to the diversification of your portfolio in some way. That could mean investing in:
- Commercial properties, as well as, residential
- Properties located in suburbs and cities
- Multifamily buildings and single-family homes
- Luxury properties and low-income housing
- Buy-and-hold properties and flips
The more diverse you can make the properties of your portfolio, the more likely you are to thrive during the times when most people are struggling to make ends meet.
Smart Ways For Real Estate Investors To Diversify
As you can see, there are many different ways in which you can introduce more diversity into your real estate portfolio. However, not all of them will have the same level of impact which means you should be selective on the methods that you implement. As a long time Sacramento property manager that specializes in helping investors like you protect themselves with diversification, I have found these to be some of the wisest methods to incorporate into your strategy.
Diversity In Types Of Properties
Different types of properties become more profitable in different economies. For example, when unemployment rates spike, more people tend to rent their homes rather than own making it easier for landlords to stabilize their income than flippers. For this reason, it is wise to incorporate at least 1-3 of each type of investment property in your portfolio to hedge against risk. Here are the main categories of properties you should use to incorporate more diversity into your portfolio:
- Apartment complexes
- Single-family homes
- Vacation rentals
- College housing
- Low-income housing
Each time the markets swing dramatically making one type of property more expensive and another more affordable, you should leverage the profitable ones to obtain the newly depressed properties at rock bottom prices. This will allow you to “buy low and sell high” while simultaneously diversifying your property holdings.
Diversity In Property Locations
In addition to pursuing different types of categories of real estate, you should also leverage location. Depending on the current economy, there will be different levels of demand for homes in either the more urban or rural areas. Your goal should be to obtain properties at their cheapest in as many different possible areas as possible.
Avoid Using Your Own Money To Fund Investments
Another way you can protect yourself is to avoid using your own money for the investments whenever possible. Using crowdfunding, capital investors, loans, and other funds can protect you from losing your own net worth. However, it is important to consider the consequences of using each and calculate the potential risk versus reward if you can’t meet the required terms of financing.
Consider Long Term And Short Term Investments
There are times when making the fast play for profits is the best strategy and times when long term investments are a better use of your funds. Ultimately, it depends on the market you’re investing in and the current level of diversification in your real estate portfolio. For example, if you specialize in investing in long term Sacramento apartment buildings, you would be wise to try your hand at some flips when the market calls for it again. On the other hand, if you primarily focus on flips, you would be wise to protect yourself with at least a few buy-and-hold properties in various areas and allow a property manager to tackle the logistics for you.
How A Sacramento Property Manager Can Help You Diversify Faster, Better & Easier Than On Your Own
One of the primary reasons why any Sacramento real estate investor should hire a property manager is to identify the best strategy for diversification. While not all property managers will do this for you, those that do, must bring adequate experience to the table to properly serve you. In my decades of experience, your best bet is to hire a Sacramento property manager that will take a holistic approach to help you manage and grow your portfolio with diversity. For example, when you hire Alpha Property Management, I will go over your entire portfolio, as well as, your goals for the future and current resources to identify a path to diversification that makes sense for you. From there I will get to work for you in making sure every move you make with your property empowers or ability to diversify.
If you would like to learn more about how to diversify your Sacramento real estate portfolio, give us a call today, and don’t forget to subscribe to our blog for weekly tips for success in real estate investing.