All investing carries a certain amount of risk. But diversification helps mitigate the risks that are specific to the industry or place. Portfolio diversification works by spreading your investment dollars across different markets, which may include geographical, asset class, or risk profile diversity. Common methods of diversification include buying property in different areas or of different types or balancing stable assets with value-added or opportunistic assets. A real estate diversification strategy might include any or all these approaches.
A diversified portfolio can take many forms. For example, a recent MarketWatch article shared the story of Leland Char, a product manager in San Francisco who would like to own property in his hometown but hates the inflated house prices. Instead of forgoing real estate investing altogether, Char opted to buy several rental houses in Texas where prices are lower, and demand is strong. With the help of a local property management company, Char can realize stable rental income every month even though his properties are thousands of miles away.
Perhaps the most common diversification strategy used by residential real estate investors is geographical diversity. This is because residential investors tend to specialize in the type of property they know most about, such as single-family homes. Buying rental properties in diverse locations has the advantage of protecting your portfolio if a market underperforms or even goes into decline. A property’s value is inextricably tied to location, and so choosing different neighborhoods, cities, or even states or regions can mitigate the risk of investing too heavily in any one market.
While location is key, another critical factor in property values is demand. Different property types rent better in different areas, depending on population demographics, local economy, and available amenities. Choosing the right property for the right location—and then finding the right tenant for it — can maximize your rental income.
To achieve a diversified real estate portfolio, successful investors rely on a team of real estate professionals. From lenders to real estate agents to quality property management services, smart investing requires that you have the right people on your side. Unlike the past, when the available options for property management services were often limited or unreliable, property management today has grown to offer a range of quality services, beneficial vendor relationships, and much more. The right property management company can help investors identify potential properties for sale, assess current market value, set accurate rental rates, and provide all necessary maintenance and repairs. They will also manage tenant relations on your behalf, negotiate leases, and help maximize your rental income for each property.
Real Property Management offers nationwide locations owned by highly trained professionals. There is no need to find a different property management company for each new market; chances are, one of Real Property Management’s more than 300 locations is nearby. With in-depth knowledge of their local markets and reliable, standardized systems, Real Property Management can help real estate investors large and small realize a geographically diverse real estate portfolio.
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