One of the things you might be wondering about when you first consider investing in real estate is whether or not you should diversify your real estate portfolio.
Basically, diversification means investing in various types of real estate property in order to lower the risk involved.
Financial experts often recommend diversification because it lowers the risk involved in investing in any one type of property.
So if your real estate portfolio consists of a number of different types of properties – some which are high-risk, others low-risk, and the rest somewhere in between- then even if any one type of property performs poorly, overall your investment portfolio would still perform well.
There’s another reason, however, why diversification is important, especially for first-time real estate investors- and that’s because diversification allows you to decide what type of real estate investment works best for you.
For example, flipping, which is a fairly common real estate strategy, involves buying a property at a lower price, renovating it, and then quickly reselling it at a higher price. Flipping is generally considered a higher risk investment, since people often underestimate the amount of time, money, and skills involved in order to do it well.
REIT’s, on the other hand, are considered low risk investments. For those of you that aren’t familiar with it, a REIT is a corporation that pools shareholders’ money and uses it to invest in commercial property.
How To Use Commercial Property To Diversify Your Portfolio
Commercial properties, especially the ones we offer here at Westwood Net Lease Properties, are generally a safer bet, especially for the first time investor. You don’t have all of the management hassles, since they’re pretty much management free. Plus you don’t pay any renovation costs, maintenance fees, or taxes, since that’s all paid by the tenant.
So if you mix up your income properties and find out that flipping isn’t right for you, you’ve still got the commercial property to back you up. Your real estate portfolio won’t be devastated, and the next time you can try out a different strategy.