4 Smart Ways to Diversify Your Real Estate Portfolio

Real estate investment can be hugely profitable, but risks are always involved. One of the most critical steps in an investor’s journey is diversification. If you are a real estate investor, finding intelligent ways to diversify your portfolio could mitigate those risks and bolster your returns. These are four of the most effective strategies.

1. Consider Tax Lien Investments

Tax lien investing is a strategy that can help investors build their real estate portfolio with a small initial capital and high ROI. The most important thing to do is learn tax lien investing from professionals, as the strategy requires knowledge and skills.

You must also do your due diligence for this strategy to be effective. Work with the best real estate agents and tax lien investors to find the right properties, and understand issues such as property tax foreclosure or assignment purchasing.

Using this strategy, you can earn a significant passive income from your tax lien certificates. This could be your path to ending up with a clean and mortgage-free property deed.

While these investments pose some risks, you can make money and boost your real estate portfolio with valuable assets with proper due diligence and a keen eye on the right property.

2. Diversify By Income Source

There are multiple income sources for real estate investments, including rental property, vacation rental properties, house flipping, etc. But which options are right for your situation?

As an investor, you must spread your focus over multiple income streams. If one source dries up, another can still provide a steady flow of cash to make mortgage payments, bank loans, and other expenses. This will allow you to keep the money and continue investing in lucrative opportunities.

3. Diversify With Alternative Investments

The term “alternative investment” may refer to hedge funds or derivatives. There are also alternative real estate investments, including the syndication of properties.

This kind of investment involves assembling a group of people (typically two to 10, but occasionally as many as tens or hundreds of investors) to pool their money and buy a residential or commercial property. Real estate syndication could be a terrific way to engage in real estate ventures without having to do it alone.

With the syndication of properties, you can combine your funds with hundreds of other real estate investors and invest in larger assets (like an apartment building or an office building), rather than investing only in a single-family rental property on your own.

Each limited partnership member then shares in the ownership and management of the asset and any profits (or losses) made. For your contribution, you will be given equity units or shares representing a portion of ownership. These entitle you to a part of the profits if the property is sold and a piece of the rental revenue.

With this strategy, you receive all the advantages of real estate investing (cash flow, appreciation, equity, and tax cut-offs) without having to deal with the headaches and time obligations associated with being a landlord. These collective real estate investments have the potential to provide substantial returns.

4. Use a Buy-and-Hold Strategy

A buy-and-hold strategy involves investing in real estate and making money over a long time. However, the strategy is hard to implement for the average investor who wants quick ROI. The buy-and-hold strategy can yield positive results, but only if you’re prepared to potentially stay in the game for decades.

In buy-and-hold real estate strategies, an investor typically buys a rental property, holds it for at least five years, and then refinances or sells it if and when the timing is right. This is sometimes done in conjunction with short-term tactics like flipping.

Some investors who hold real estate assets rarely sell. Instead, they use a cash-out refinance to get equity from one property to purchase another. To raise money for a third cash-flowing investment property, an investor does a cash-out refinance on both after patiently waiting for both properties’ market values to rise.

A high-value, dividend-paying stock can be easily compared to investing in buy-and-hold real estate. The latter, however, often offers a variety of tax benefits that other investments do not. It is also typically less susceptible to the same vulnerabilities that the stock market is.

The Bottom Line

Many real estate agents and seasoned investors can help you find innovative ways to diversify your real estate portfolio. Each professional will have skills related to finding properties, securing funding, and developing long-term strategies for success.

Study all of these opportunities, learn about REITs, participate in investors’ workshops and masterclasses, make connections, and you can start earning passive income sooner rather than later!