Diversifying Your Real Estate Portfolio

Not all real estate investments are created equal. Investing in different asset classes, various geographical markets, and mixed asset types is a great way to minimize risk and ensure steady growth and returns among your investments.

Types of Real Estate

Residential - These types of properties are simply designed for living. Common ways investors use residential real estate for investments is by purchasing them as fix and flips, or purchasing a property and holding it as a rental to collect consistent cash flow. Included in this category are multifamily (if four units or less), single-family homes, and townhomes/condos.

Commercial - Commercial real estate is used for income generating purposes only. These are mostly larger scale properties such as hotels, apartment complexes, multifamily properties with several units, retail and office spaces, as well as self-storage facilities.

Land - When investing in land, you’ll be looking at either brownfield or greenfield. Brownfield is land that has previously been developed on and will require more inspection before new development begins. Greenfield is usually used for agricultural purposes and is land that has had no development or building activity.

Real Estate Asset Classes

Class A - Generally speaking, class A properties are found to be in sought after areas, have high-quality amenities, are newer, and are professionally managed.

Class B - One step below class A, class B properties are older, but are typically well-maintained. Some upgrades and repairs may be needed, however, they are still considered a value-add investment.

Class C - The lowest level class is class C. Usually found in less than ideal areas and in need of renovations and repairs. Due to these factors, unless updated, you would be unable to charge a high rental rate.

These classes were established by lenders, brokers, agents, and investors in order to easily communicate about different properties, the quality of a specific property and the potential risk and return associated with each.

Geographical Diversification

Real estate opportunities vary from place to place. One market may be really hot, while another area, just a few states over, is experiencing much less demand. To be a savvy investor means to not have all of your eggs in one basket. Diversifying your real estate portfolio across different geographical locations can mitigate large risks associated with holding all of your assets in the same location. If one market starts to slow down, there’s a good chance markets elsewhere are heating up.

Diversifying your real estate portfolio can feel daunting and unfamiliar at first. However, it does not have to be! Partnering with the right industry professionals when it comes to strategy, financing, and purchasing a property will make you feel confident and prepared to take on your new investment.