Should I Diversify By Investing In Different Property Types?

posted in: Hard Money Borrowers Guide | 0

One of the most common questions we get at Glassridge, from beginning to experienced Investors alike, is whether one should acquire, work with, and/or hold different property types in their real estate investment portfolio.

Is it a good idea to invest in Single Family Residences, Apartment Buildings, and Commercial Properties?

Or is it smarter to stick to one single property type, and only aim to master the one?

This is ultimately a difficult decision that must be left up to each individual real estate investor, however we do have several key pointers I can recommend considering.

6 Keys To Picking The Right Type(s) Of Investment Properties

As a Lender on all types of property types in all types of local markets around the USA, we have a unique perspective on what works & what doesn’t. And ultimately, most successful investors share several traits in common when it comes to diversification.

  1. Investment Strategy. The first step in identifying the right type of property for your real estate investing is your broader investment strategy. If you’re looking for Fix & Flips, chances are SFRs will take up a majority of your transactions. If you’re more focused on Buy & Hold, your options vary, so you’ll need to consider other factors carefully.
  2. Existing Expertise. If you already own a construction company, it makes a lot of sense to focus on Raw Land, development, and Fix & Flip projects. If you’re an experienced Commercial Real Estate Agent, it might make more sense to focus on Buy & Hold strategies on apartment buildings and commercial properties. Stick to what you know when possible, and leverage your existing resources & expertise for a competitive advantage in whatever property types you choose to invest.
  3. Portfolio Size. Unless you have a multi-million dollar portfolio to manage, you can probably get away with only one property type. As your portfolio grows, you’ll need to more carefully assess your risk exposure to various micro- and macro-economic scenarios to help guide your diversification plans. Even multi-billion dollar REITs and portfolios have been built on a single property type.
  4. Location. If you are most familiar with a local neighborhood or urban center, then it makes a lot of sense to focus your investing nearby. Pick what type(s) of real estate make the most sense in that area, and begin there.
  5. Access to Capital. One of the most crucial factors to success in real estate investing is financing. You might find it much easier to finance single family fix & flips than commercial real estate acquisitions. It makes sense to go where you can get the money.
  6. Management Burdens. As your portfolio grows, you’ll need to handle day-to-day operations, maintenance, marketing, and customer service for your tenants. You’ll either need to factor in the cost of outsourcing this to local service providers, or to carefully consider what type of tenant you find most desirable (single families, corporate firms, retail stores, manufacturers & distributors), to guide you to the right type of properties.

There is no easy answer as to what type(s) of real estate investment properties to buy. If you consider the above 6 factors, chances are good you can come up with a few top choices, and if you still have questions, we’re always happy to help if you contact us directly.

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