What are diversified investments in real estate?
In the world of investing, diversification refers to investing your money in a number of different markets, property types, and funds.
Diversification is not a concept that is limited to real estate investing, but it applies to all types of investments, and will often include real estate properties as well as stocks and bonds, as diversifying your investments between multiple types and markets will greatly reduce your risk and stabilize your cash flow.
Diversified Investments in Real Estate
What we mean by “diversified investments in real estate” is to invest in different types of real estate properties and different housing markets.
In order to diversify your investments in real estate, you should seek opportunities to invest in a number of different property types, such as rental properties and fix-and-flip properties, as well as in a number of different markets, such as states, cities, or even countries.
While this might not be relevant for beginner real estate investors looking to purchase their first investment property, as their business grows and they start buying more properties, it is important to keep in mind that they should aim for diversified investments in real estate as long as it is viable for them and they can manage multiple investments across different areas and property types.
Benefits of Diversified Investments in Real Estate
The main benefit of diversifying your investments is to reduce the chances of losing money due to asset-specific risks or due to market risks and shifts.
For example, if your money is all tied to a number of rental properties in the same market, and that market’s dynamics result in the rental rates going down, this will affect your entire investment because all properties that you have invested in were affected at the same time.
Having diversified investments means that if a certain property type or housing market is affected negatively, only a fraction of your investments will be affected with it, and some of your other investments might actually improve at the same time if they are in different markets.
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Disadvantages of Diversified Investments in Real Estate
The major disadvantage of diversified investments in real estate is that you won’t be making any burst profits, which is the tradeoff for having more stable investments that are guaranteed to keep the cash flow coming at a slower rate.
Basically, choosing to diversify your investments means that you will be reducing the chances of making large sums of profits in a short amount of time, but will guarantee that you will be making profits, with greatly reduced risk, over a longer period of time.
One of the most common methods for having diversified investments in real estate in our modern times is to invest in robo-advisors.
Robo-advisors are online platforms that function similarly to REITs, but will diversify your investments across multiple classes and property types in order to maintain a positive cash flow and reduce the risk of losing your money.
Finally, if you’re looking for different types of rental properties across multiple markets in the US, make sure to use Mashvisor to find the most suitable properties that are guaranteed to generate a profit for you!