Real estate investors are constantly seeking ways of becoming better and more prosperous in their business. There are many different real estate investment strategies to achieve that. However, being one of the so-called diversified investors is an almost sure way to succeed in real estate investing. What are diversified investors? Why are they the most successful real estate investors? And, most importantly, how do you become one of them? Luckily for you, Mashvisor can provide you with all the answers and help you become one of the best real estate investors there are.
What Are Diversified Investors?
Diversified investors are, simply, real estate investors who choose to distribute their investment capital over a number of different assets. The reason behind this real estate decision is boosting the return on investment, while minimizing the real estate investing risk. “How is that possible?” you may ask. The explanation behind this real estate phenomenon is simple. Let’s imagine that there is some major economic event. A real estate investor has his/her capital invested in a single real estate property. Therefore, the economic event affects the whole investment of the real estate investor identically. There is a chance that this economic event has a negative impact on the real estate investor’s asset. In this case, he/she may experience serious real estate investing business troubles. Different real estate assets, however, react differently to a single economic event. Therefore, there is a little to non-existent chance that a single economic event will ruin your entire real estate investing business. That is also the main reason clarifying why diversified investors are those who succeed in real estate.
How to Become One of the Diversified Investors?
One of the most asked real estate questions is how to become a successful real estate investor. The answer? Simple! Become one of the diversified investors in the real estate business filed. What this means is creating a diversified real estate investment portfolio. Diversified investors create such a real estate investment portfolio through putting capital in different real estate property assets. There are three main ways to create a diversified investment portfolio:
#1 Multi Family Properties
Multi family properties represent a type of rental properties. These investment properties consist of many housing units. This has its perks when it comes to the real estate investing business. Firstly, housing units require lower start-up cost in comparison to single family properties. Additionally, they are more attractive for tenants due to the lower rents. Another benefit multi family homes have is the lowered risk for real estate investors. If a real estate investor holds some housing units in a multi family property, there is almost no chance of having them all vacant simultaneously. Even if one of them is unoccupied, the costs for the real estate investor are lower as opposed to an unoccupied single family house. Furthermore, having your investment properties clustered together makes it easier and more time-efficient to manage them. Last but not least, there are higher real estate appreciation prospects. This means that if a common feature is upgraded in the multi family property, the value grows higher for each housing unit it in. For all the reasons listed above, many diversified investors choose multi family properties as a part of their real estate investment portfolio.
#2 Commercial Properties
Commercial properties are investment properties which are used as office spaces or business spaces. Commercial real estate investing usually leases properties to companies and aims to provide a working space rather than accommodation. The biggest benefit of commercial properties is the fact that there is less competition among real estate investors. Due to the lack of supply, such properties are less likely to be vacant. A disadvantage is that when unoccupied, commercial properties stay like this for a longer period of time. However, this type of investment properties is usually associated with long term lease contracts. Additionally, the rental income a real estate investor gets from a commercial property is relatively high. Furthermore, many times there is an agreement between the real estate investor and the company renting the property. This agreement is called the Triple Net Lease. It requires the tenants to pay the insurance of the property, the property taxes, and the maintenance costs. Needless to say, many diversified investors put their capital in commercial investment properties, regardless of the high start-up costs.
#3 REITs (Real Estate Investment Trusts)
Real estate investment trusts (REITs) are companies which own and operate income producing real estate. This type of real estate investment is similar to stock investing. Shares are offered to the public. Nevertheless, these are real estate shares rather than exchange ones. A double-edged sword is the fact that these assets are continuously valued. This is beneficial because local real estate markets do not influence their value. Yet, the value of this real estate investment can go lower after such an evaluation.
How NOT to Become One of the Successful Diversified Investors?
Sure enough, becoming a diversified investor is not an easy task. Here are some of the most common mistake a real estate investor can make on the way of creating a successful diversified investment portfolio:
Too Many Real Estate Investments
There is a thin border between having too few and too many real estate investments. Keep your assets enough to create a diversified investment portfolio. Still, make sure you are able to manage all of your real estate investment assets. Remember, more assets does not always equal a diversified real estate investment portfolio.
Stuck on the Same Page of Your Real Estate Business
It is important to note that successful real estate investors are the ones who trade. Instead of trying to keep all your real estate investment assets, trade them when there is a good opportunity. Besides, always look for new real estate investment possibilities which might be good for your business.
Not Really a “Diversified” Real Estate Investor
Most importantly, choose wisely your real estate investments. In order to have a successful diversified real estate investment portfolio, choose assets that have opposite directions. This means that they will react differently to the same economic event. Only in this way can you become a prosperous diversified investor in the field of real estate.
Do you want to make money out of your real estate investing business? Become a diversified investor!