How to Build a Diversified Real Estate Portfolio

Diversify To Mitigate Risk


'Ninety percent of all millionaires become so through owning a real estate. The wise young man or wage earner of today invests his money in real estate.f

Investing in real estate may give someone dithers; it is, however, one of the most compelling markets to enter. Real estate profits have far outrun profits from other industries combined together.

A well-curated and maintained portfolio showcases your financial strength and your personal investment goals. An investor should, thereby, diversify his real estate portfolio. They say one shouldnft put all their eggs in one basket. It is due to the very meaning hidden behind these lines; one looks out for diversification. Diversification allows one to mitigate their risk exposure. If the investment is spread across a broad spectrum, the loss in one is nullified from another. It restricts dependence and thus reduces the risk. Moreover, building a diversified real estate portfolio is a smart way of accelerating long term wealth while mitigating for foreseeable risk.

Before we begin with a guide to building a diversified real estate portfolio from scratch, let's look at some of the factors that drive the market and should drive your decision as well:

1. Objective

Each transaction should be governed by an objective and should be within the framework of your final goal.

2. Asset Allocation

It is always ideal to create an appropriate asset allocation model for your investment.

3. Risk Profile

Any real estate project categorically falls in one of the four risk categories, starting with low-risk, core-plus, value-added, and opportunistic. When investing in real estate, chase for high returns under low to medium risk profiles.

4. Appreciation

Your real estate portfolio must be designed in a way that it gives you long term value appreciation.

A careful study of these factors, along with trends in the market, will enable investors to reap the highest benefits while mitigating the risks.

How to Build a Diversified Portfolio to Minimize Risk?

1. Investment in Multifamily Properties

These multi-dwelling units are one of the most compelling investments. A kind of residential housing with two or more units to accommodate more families under one roof, they bring more substantial sum of cash flow and reduce the dependency of rent on one family alone.

Vacancies can entail a series of rental expenses associated with real estate investing. However, in a multi-family dwelling, the risk of loss of income from an empty apartment is balanced out by income from different other tenants.

2. Investment in Commercial Properties

Commercial property refers to a place that houses different businesses, be it for an office space or a hotel or an industrial set-up. Commercial real estate has become one of the most favourite asset class for investment. An investor seeking to diversify his investment portfolio must enter this domain. This sector has shown lucrative benefits for investors over the years in the form of regular cash flow, low vacancy risk, higher-income possibility, etc.

3. Invest in REITfs

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A Real Estate Investment Trust is a company/corporation which works to finance income-producing properties. Just like stock investments, you can buy shares in several commercial properties and received dividends on them.

Even though they are vulnerable to share price volatility, at large, they offer the highest returns with minimal work. And as in investor, you can enjoy a multitude of benefits like diversification, long term capital appreciation, regular income streams, etc.

Plan, strategize and keep yourself free of excess debt burden while diversifying. And, in case managing multiple assets is becoming demanding and challenging, trust KGK Infrastructure to take care of it. Whether you are starting new or looking to grow, we will help you find the most lucrative residential and commercial projects in Jaipur. Before looping in any opportunity, contact us for expert guidance. Invest, the smart way with us!