How to Create a Diversified Real Estate Portfolio
If you haven’t invested in a real estate syndication yet, it may be because you are still learning about investing in commercial properties or it may be that you’re unsure about the different types of assets and the different markets that are available for you to invest in nationally. This is common with most real estate investors who are new to these investment options.
In this post, we’ll talk about how to attain portfolio diversity with various alternative investments that can be a great way for you to produce passive income with the end goal of offering you financial freedom. A diversified investment portfolio is a great way to help you to mitigate your overall risk both in good times and in bad while generating steady growth in your portfolio. We’ll help you to understand more about commercial real estate investing no matter where you are in your journey.
Create A Diversified Portfolio Based On Asset Class
The first step is to choose different asset types that can complement your investment strategy. By that, I mean that each of these property types will have its own risk profile and have the potential to be a sound investment through various economic market cycles.
When prospective investors invest in a single investment property such as a single-family rental property, the risk is concentrated in that one asset. On the other hand, when you invest in different asset classes you are engaging in asset allocation, which can help to lower risk. Additionally, investing in different types of real estate that may be in a different real estate market can help you to create better portfolio diversification.
Multifamily Properties As a Way to Diversify Your Portfolio
Multifamily real estate syndications can be strong investment opportunities given that apartment buildings serve a basic human need – the need for shelter. Additionally, investing in commercial residential properties such as apartment buildings meets the high demand for affordable housing that is so desperately needed in the United States.
These real estate investments are available to potential investors in every city across the country and are available in different asset class types such as Class A, Class B, Class C, or Class D, which range from luxury assets to dilapidated properties in need of much repair. We concentrate on investing in workforce housing – high-demand Class B and Class housing options.
Most of the opportunities for investors lie in the ability to invest in a value-add multifamily real estate syndication where the sponsors/operators have a clear vision and business plan to improve the property and efficiencies thereby increasing revenues and creating the ability to produce high returns.
These residential real estate investment properties generate monthly cash flow from the rental income in addition to various other revenue streams such as laundry facilities, storage fees, and pet fees, for example. Additionally, the leases are long-term – generally a year or more – which can create a more stable investment vehicle for investors.
Self-Storage As a Way to Diversify Your Portfolio
Self-storage is one type of asset that can help you create a diverse real estate portfolio. Self-storage facilities are in high demand in various markets, and prospective investors can capitalize on that demand by investing in syndications that acquire these asset types.
Today with so many smart building features, owners of these facilities have a plethora of options to increase efficiencies and revenues such as remote monitoring, keyless access to units, sensor-controlled lighting and temperature settings, mobile app integration with reservations, and automated services such as garbage collection and maintenance.
Storage units may have a higher turnover, but with this type of investment, there are little to no maintenance and repair issues that need to be addressed before a new tenant is ready willing, and able to move in. The rental income per unit is certainly less than say a multifamily apartment unit, but most self-storage facilities house hundreds and hundreds of units resulting in very favorable lot size to revenue ratios.
Storage facilities can be great income investments and one you should consult with your financial advisors about to see if these assets would be a good complement to your real estate investment portfolio.
Invest In Mobile Home Parks as a Diversified Portfolio Component
With a very tight and expensive housing market and limited affordable housing options available for many, mobile home parks can be a great way to create diversification in a portfolio. Mobile home parks are an investment type that meets a basic human need – the need for shelter, as was mentioned earlier with multifamily real estate syndications.
Mobile home park residents rely on the park’s owners and managers to provide such services as security and maintenance and various other amenities within the park. As a result, there are what they call “lot rents” for these services, improvements, and amenities that are to be paid by the residents to cover those expenses. These lot rents can generate substantial revenue for the owners and investors.
Additionally, these improvements can be made to the mobile home parks without a lot of capital expenditures which provides investors with the potential to have a great return on their investment.
Operators generally convert the parks from park-owned homes to tenant-owned homes so that they don’t have the added expense of maintenance and repairs of the mobile homes themselves. Residents tend to take better care of their mobile homes when they own the homes themselves and the mobile home parks tend to be a better living experience for all of the residents when there is a pride of ownership in the homes.
Because of various zoning issues in most municipalities, mobile home parks are in limited supply and in great demand because of the affordability component it provides for so many. This asset class is particularly popular for investors because of the potential for high cash returns. Mobile home parks can be a very lucrative commercial real estate investment that you may want to explore more for your own real estate portfolio.
How To Build A Diversified Portfolio With Three Asset Types
You can create diversification with these asset types (multifamily real estate syndications, self-storage facilities, and mobile home parks). These all provide you with a physical asset that you can invest in as opposed to paper assets. You can further diversify your investment portfolio by investing in these types of assets and in various real estate markets across the United States that are demonstrating strong population and job growth to help mitigate your risk.
How you can achieve this is by determining how many real estate syndications you would like to invest in and what your time horizon is going to be. So, for example, if you want to invest in 10 real estate syndications in the next 5 years, then that is a goal you can set for yourself. You may not know where to start once you have set your goals, but the good news is that we at PCRP Group help you find these opportunities in these various asset classes and across an array of strong real estate markets throughout the country.
For real estate investors that are just starting in commercial real estate investing, we suggest exploring the idea of starting with multifamily real estate syndications first and adding other asset types as you go along. But always seek investment advice from your advisors before making any financial decisions.
Until next time, Earn Passively & Live Abundantly!
Note: we are not financial advisors and are not offering financial advice of any kind. Please consult with your advisors before making any investment or financial decisions.
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