Diversification is one of the first things you’re taught in the investment world. No matter what you’re investing in, experts encourage you to diversify and put your eggs in multiple baskets. The benefits of diversification are clear: you spread the risks and prevent one problem from ruining all of your investments. That’s why you’re supposed to invest in different assets – as well as make numerous investments within the same overall market.
With that in mind, we come to the topic of real estate investments. Investing in different properties will help you free up cash in retirement as an exceptional long-term investment plan. However, many people will invest in one or two similar properties and call it a day. In reality, you need to diversify your real estate investments to spread the load and open more avenues for profits.
Here are four strategies to do exactly that:
Invest In Different Property Types
As you should be aware, real estate investments come in many forms. Traditionally, you can categorize them into three main property types:
- Residential
- Commercial
- Industrial
Residential properties are where most people begin their investment journeys. You buy a house or an apartment, then rent it out or sell it for profit. One method of diversification is to invest in other property types, allowing you to tap into slightly different investment markets.
For example, investing in commercial property can yield higher rental returns as your main target is business owners with more money. Both commercial and industrial properties are also less likely to be affected by the same things as the residential market. For instance, if people aren’t buying homes, that doesn’t necessarily mean businesses aren’t buying offices or warehouses.
Look Into Real Estate Investment Funds
Real estate investment funds give new ways for you to dip into the property market. Many exist, though the core concept is that you pool your money with other investors to invest in shared assets. Unlike traditional real estate investment, this method means you don’t have to worry about managing your properties.
It’s a popular way of diversifying your real estate assets, and property investment expert Aby Galsky explains that these funds expose you to countless real estate markets. They open doors that may not have been open before, so you can spread your wealth across many different things.
There’s also an argument that real estate investment funds provide more flexibility than traditional real estate investments. It’s a lot easier to sell your shares in a fund and make a profit than it is to sell a property. You can adapt quicker to market conditions, allowing you to maximize returns.
Dabble In Other Geographical Markets
We mentioned this in the previous section, but venturing out into different geographical markets helps you diversify your real estate portfolio. You can do this with real estate investment funds, but you can also do it alone with individual investments.
Why is this a smart idea? Because some countries have much “better” real estate markets than others. What we mean is that the market in certain areas could experience rapid growth, making it the perfect place to make quick money. Dubai is the best example of this we can think of. Its property market started growing in 2002 and quadrupled in 6 years. This was the start of the area’s insane growth, turning it into a billionaire’s paradise in 2024. If you invested in Dubai property back in 2002, you’d undoubtedly earn a fortune from selling your assets now.
Being aware of geographical property markets helps you spot the next Dubai. You’re looking for countries or cities with affordable homes and lots of room for investment and growth in the coming years or decades. It opens new doors – but it also means your real estate investments aren’t dictated by one specific market. If the US property market falters, you’ve got foreign properties to fall back on.
Include Different Investment Strategies
The beauty of real estate investments is that they give you many ways to make money. That’s another way to diversify your assets; try various investment strategies based on the properties you’re purchasing.
Get some properties aimed at long-term gains. You buy them, hold them for years, and sell them for a profit. It’s the classic approach to real estate investment with a lifetime of proven success. Additionally, invest in some buy-to-let properties for constant income streams. These properties earn money through rent and require more management, but they can be extremely lucrative.
Then, think about fixer-upper properties. Invest in slightly rundown properties and convert them into fantastic things. If you manage the costs of your improvements, you can easily sell them for huge profits within a year or so.
All of these ideas show you how to diversify your real estate investments, allowing you to make more money and mitigate risks. Don’t focus on one way of doing things; the more eggs you have in different baskets, the better.