Diversity Your Real Estate Portfolio to Minimize Risk
InsightInvesting Strategies

Diversify Your Real Estate Portfolio to Minimize Risk

There is no doubt that real estate is usually one of the most stable long-term investments. But like everything else, this type of investment can experience hiccups. The 2008 recession is enough proof of that.  That said, you should still include real estate in your investment portfolio.

However, if you want to ensure you minimize the risks, you can diversify your real estate investments across multiple sectors. That way, if one sector of the real estate industry is down, you can still benefit from the other sectors.

But how should you go about diversifying your real estate investments? What specifically should you invest in? Where do you even begin?

Diversify Your Real Estate Portfolio

1.) Invest in the rental market

Shelter is one of humanity’s most basic needs. People have to live somewhere. They might as well live in the homes that you own.

Statistics show there are 42.58 million housing units occupied by renters in the United States. More than 300 million people live in this country, and not all of them can afford to own a home. There is definitely room for you to invest in rental housing.

It’s also worth noting that the median asking price rent in the United States was $1,381 as of 2015. That’s good money no matter which way you look at it.

Should you choose to go the rental housing investment route, you will have your choice of renters. In many cases, your location will determine the kind of renters that you can rent to. These may include:

  • Students in college towns
  • Young, up-and-coming professionals
  • Dual-income couples with no kids
  • Families with kids
  • Low-income renters who qualify for Section 8 housing

What works for you may not work for someone else. So take the time to find out which kinds of rental units would best suit your investment needs and preferences.

2.) Invest in vacation rental units

If you don’t want to rent to long-term residents, then consider investing in vacation rentals. When people go on vacation, they want to stay in a place that will help them relax and enjoy their stay.

Not everyone is interested in staying at a traditional hotel, which leaves room for you to invest in vacation rental units that will bring in money. And we are not talking about peanuts, either. The vacation rental market is expected to hit $169.7 billion by 2019! Wouldn’t you like to enjoy a piece of that profitable pie?

If you decide to go with vacation rentals as your way of diversifying your portfolio, then consider partnering with brands like Airbnb, FlipKey, Vacations Rentals by Owner (VRBO) and HomeAway, among others. These sites are popular with travelers looking for a home away from home and will help you find temporary renters faster than if you were to advertise on your own.

3.) Think corporate housing

How often have you ever thought of corporate housing as a means of investing in real estate?

You should.

Corporate housing refers to fully furnished temporary housing that you can rent out to corporations or individuals looking for accommodations that are usually available for 30 days or more. Housing units of this nature can take the form of apartments and executive suites.

This kind of investment tends to be very popular with people on the move or those whose lives are in transition – think military personnel, business professionals and individuals in the process of relocating.

While it may not seem like it, corporate housing can actually be very profitable. According to one industry report by CorporateHousingByOwner.com, the corporate housing industry is worth $2.7 billion. That’s nothing to laugh at.

You can opt to diversify your investments by actively managing an apartment building or two for corporate housing purposes. Alternatively, you can simply invest in the building and let your property managers do all the difficult work. It’s all up to you.

4.) Rent out space for businesses

You don’t have to actively become part of industries in which you want to dip your toes. You can partake in their successes simply by investing in what you know best: real estate.

So, how should you go about doing so? Well, it’s simple. Just invest in real estate and rent out workspace to business owners in the industries you are interested in. So long as those businesses remain successful, you will get a share of the profits in the form of long-term business rental income.

Examples of businesses you could rent to include:

  • Restaurants
  • Hair salons
  • Storage companies
  • Warehouses

5.) Invest in real estate that offers unique experiences 

Would you like to diversify your real estate portfolio while offering unique experiences?

What’s stopping you, then?

Remember, real estate investments also include land. So why not buy into real estate that offers unique experiences to your target market?

You could invest in historical homes that have a history of hauntings, for example. That would allow you to offer ghost tours. How about buying huge swaths of land in the form of ranches? You could hire someone to operate a dude ranch to attract people who want to try out that kind of lifestyle.

Beautiful gardens could be just as interesting. You will be amazed at how many people would be willing to hold major events like weddings in beautiful gardens if you market your investment in the right way.

If you find the right real estate investment, the possibilities are endless! Think about it.