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How to Enhance Portfolio Diversification Using Real Estate

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Enhance Portfolio

If you have been in the investment world for some time, you know that even the strongest portfolios contain investments because of which they might experience loss at some point. For those who don’t go about investing strategically, such losses can be detrimental for their budget, while others can find manners to soften the blow. One prosperous strategy for those losses not to be so disastrous is to diversify your portfolio in terms of real estate because of its easy accessibility and vast potential. With that in mind, here a few suggestions concerning real estate investment for you to consider.

Participate actively

If you already have some prior knowledge regarding real estate, then you can actively participate in the market on your own. One of the options is to get involved in rental properties and either tend to the rent collection, property maintenance, and tenants’ satisfaction on your own or hire a property manager. Another option is to look into house flipping, which is basically purchasing a property under market value, fixing it up to sell it at a higher price in which case you need to have your ear to the ground to be able to catch the right opportunity. If you have the time and the knowledge, this undertaking can be both lucrative and fun, however, if you stick to just one asset class, these being large investments for a longer period of time, you can suffer loss if, for instance, two out of three rentals remain empty for a longer period. 

Research into private equity funds

Private equity funds, to put it in the simplest of terms, are an investment model where different investors pool their money together into a fund to make investments. The investors don’t have to participate actively that much since there is always the manager who looks after the investments. Different funds have different investment potential and multiple real estate investments which means that getting involved with them would significantly diversify your portfolio in terms of real estate. However, having in mind that the investment minimums are high and that annual management fees are applied, one shouldn’t be completely passive but instead, do thorough research before deciding to invest in a particular private equity fund. 

Consider international markets

Expanding your reach internationally can be a means for both a profitable future and an extensive portfolio diversification. Confining your real estate investment to one neighbourhood is impractical because at one moment it can be the up-and-coming neighbourhood and lose its appeal and value in the next. This is why spreading your reach to other countries, especially promising exotic markets, such as Indonesia, will eliminate this risk. If you decide on this option, you would need to research local laws and regulations regarding property ownership for foreigners. To make sure everything is done by the book, it is best to hire experienced local experts, such as Invest Islands investment firm, which can offer advice regarding different types of ownership and your rights and obligations. Once you are certain that you covered all the basics, you can then proceed to capitalize on your foreign investment.

Study private REITs

Another option worth researching is the private REITS (Real Estate Investment Trust) – they are trusts that own and manage real estate properties and mortgages. They are legally bound to earn most of their income from real estate (at least 75%) and to also invest the same percentage of their assets to real estate. In the case of REITs, the investment minimums are not so strictly prescribed but are nevertheless high, as well as the fees. No matter the amount of money you allocated for investments of this type, you presumably don’t have any to waste, so it is more than necessary to inform yourself well on all the options, especially since a lot of things depend on individual REITs. Each has its own investment potential and you must also keep in mind that the investments are usually illiquid.

Compare online real estate platforms

The main benefit of online real estate platforms lies in its diversity: for instance, with most, the property choice is not limited by property type so you can opt for both residential and commercial, depending on your wishes. Also, they cover most investment types (debt, equity) and when it comes to eligibility, some welcome only accredited investors while others that are available to non-accredited investors can still have rather high investment minimums. Since some platforms allow lower investment minimums, you can start with those to see how everything functions. Although this type of investment is also passive, due to the multiple investment forms that online real estate platforms can offer, it is advisable to do some research and ask around to make sure you end up investing in exactly what you want.

Conclusion

Investment is a wide and lucrative field if you draw wise moves. There will always be a risk but that is not only inevitable but one of the essential and exciting parts. To prevent one loss to be the end of your career as an investor, you need to diversify your investment portfolio and the time is right for focusing on the real estate niche. And the best thing is that you don’t necessarily need prior experience since you can learn most of it along the way.

Associate Editor

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