top of page
Search

5 Ways To Maximize Long-Term Growth Through Diversification

  • aschutsky
  • Jul 16, 2022
  • 3 min read

Have you recently been around a new mom or dad? A few recent encounters with our friends and neighbors with a newborn reminded me of this scenario: She or he likely has stashed packages of baby wipes everywhere. In her purse (or shoved under the car seat - dad!), the diaper bag, multiple places in the baby’s room, in the master bedroom, etc… it’s likely that anywhere she/he and the baby might be, a stash of baby wipes is near.


The purpose, of course, is to prepare for those unexpected moments that accompany having a new baby. That new mom or dad might not know exactly what to expect, or when a surprise spit-up will happen, but she knows to expect the unexpected.


Diversifying Your Real Estate Portfolio

Similarly, it’s important to expect the unexpected with your real estate portfolio. We can’t predict the future market, but, based on historical data, we know to expect cycles. Market corrections and recessions occur every so often, so it’s important to prepare your portfolio to withstand those fluctuations.

One of the most powerful strategies used to successfully weather economic cycles is diversification. Even within real estate, you can diversify and maximize the long-term growth of your investments. By investing in a variety of different real estate assets, you can lower the risk overall. Here are 5 ways to do this:

#1 - Asset Type

Within the real estate world, there are a variety of asset types to choose from. You can invest in retail, industrial, multifamily, office space, self-storage, and more. By varying the types of properties you invest in, you’re hedging against broader changes to the economy.

#2 - Location

At any given time, one city might be booming while a neighboring area may be experiencing a lull. Smart real estate investors desire properties in growing areas or those expecting growth.

By diversifying across multiple cities, counties, or states you can take advantage of the potential across several markets and hedge your bets against a correction in any one area.

The challenge in diversifying across geographical locations is obtaining the research, connections, and more that you’d need to feel comfortable investing in them. This is what makes passive investing so attractive - you can leverage the expertise of the sponsor team in each market.

#3 - Asset Class

Aside from asset type, there is also asset class, which is a range of moderate-to-luxury unit prices within each asset type. Take an apartment complex, for example, and consider the range between moderately priced units, nicely developed units for the upper-middle class, and finally, the ultimate luxury apartments that are available in some areas.

Certain asset classes, like the more conservatively priced units, do well during rough-patches in the economy. Luxury properties do best during the so-called booming economic years. It’s important to have both in your portfolio so that at any given point in the economic cycle, your portfolio is profitable.

#4 - Hold Length

Real estate syndication investments have an associated hold time which can range between 3 -10 years (or more). Consider varying the hold time of your investments, so you’re not entering and exiting more than one deal at a time.

#5 - Funds

One of the easiest ways to diversify quickly is to invest in a real estate syndication fund. A fund pools together investors’ money to buy a variety of assets within a specified period of time. Funds can be defined by geography, asset type, or asset class.

Conclusion

At certain points in the market cycle, it will feel as if the market will go up forever. Conversely, it may feel like the market will continue a downward spiral forever. We know that neither of these are true and that during one phase of the cycle, portfolios should be diversified in preparation for the next phase.


Keep these 5 ways to diversify in the back of your mind as you explore potential deals. Doing so will help you find various opportunities to diversify your portfolio, no matter the current market cycle.


Learn more by signing up for our free 8 part learning series - check out our site www.investwithredline.com.



 
 
 

Comments


Post: Blog2_Post
  • Facebook
  • LinkedIn

This website is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. The information, opinions and views contained herein have not been tailored to the investment objectives of any one individual, and are not a solicitation for any particular investment.All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice or solicitation. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.Any ideas or strategies discussed herein should not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial objectives, needs and risk tolerance. Redline Equity expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.The information contained herein is not, and shall not constitute an offer to sell, a solicitation of an offer to buy or an offer to purchase any securities, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or sell any investment product or service. 

©2020 by Redline Equity, LLC.

bottom of page