As a real estate investor, it's vital to diversify your portfolio. You don't want to put all your eggs in one basket, because if that basket cracks, you could lose everything. Instead, spread your capital around and invest in different types of assets. So, how do you keep your real estate portfolio diverse?
In this blog, we'll explore some real estate assets you can use to diversify your portfolio. Keep reading to learn what they are.
Storage
Storage properties are a great addition to any real estate portfolio. By owning a storage property, you can offer your tenants a needed service and diversify your income stream.
Choosing a Storage Property
Storage properties are perfect for many different purposes, from personal storage to business storage. This versatility makes them a unique investment that can appeal to a wide range of tenants.
There are a few things to keep in mind when looking at storage properties:
First, make sure the property is in a good location. It should be easily accessible for tenants and have a good amount of traffic.
Second, remember to research the competition. There may be other storage properties in the area, so it's essential to make sure the property can stand out and is competitive with the area.
Finally, ensure there is a good marketing strategy in place. Promote your property to local businesses and individuals who may need additional storage space.
Storage property can be a great investment because it's a necessity for many people and businesses. Storage units are generally set up on auto-pay to create a stable rent collection, and when units go into default, they can easily be auctioned off and quickly turned over. Storage property is also a relatively low-risk investment, as it's not as vulnerable to economic downturns as other real estate investments.
Hotels
When most people think of real estate, they think of apartments and houses. But there's another type of real estate you can use to diversify your portfolio, and it's hotels.
Like other types of real estate, hotels are a physical asset that you can own and use to generate income. And like other types of real estate, the value of hotels can go up and down depending on the economy and the market.
But what makes hotels a particularly good investment is the fact that they tend to be relatively recession-proof. People will always need a place to stay, even during tough times. Buying a hotel can give you a ready-made business with a customer base and a steady stream of income.
Choosing a Hotel
Of course, there are a few things to keep in mind when investing in hotels:
First, the type of hotel. Are you looking for a full-service hotel with many amenities? Generally, these types of hotel properties are heavily dependent on travel and tourism and can be impacted by economic downturns. There are also select-service hotels which have a limited selection of amenities and are generally catered towards business travelers. These types of hotels can weather economic downturns better as service/location-based industries will always need a space to house business travelers.
Hotel’s can have exceptional cash-on-cash returns when compared to multifamily properties and other asset types. Since hotels operate on a nightly basis, they are able to charge a premium for their rates. Due to the fast turnover of rooms (compared to a multifamily property that typically has 1-year leases), hotels are able to always adjust their pricing to account for inflation, demand and other economic factors.
As mentioned above, hotels can be expensive to buy and operate. How agile are the operations of the specific hotel you are considering and are they able to easily pivot their operations to meet the occupancy of the hotel? The hotel management’s ability to adjust their operations can be a strong indicator of whether they will be able to navigate periods of lower occupancy.
But if you can find a good hotel in a good location, it can be a great investment for your portfolio.
Industrial
Industrial properties are a great way to diversify your real estate portfolio. Industrial properties are used for manufacturing, assembly, and distribution of goods. It can be used for various business purposes, including warehousing, light manufacturing, and research and development.
Industrial property is a relatively safe investment. It's less susceptible to market fluctuations than other types of real estate, making it a good choice for investors looking for stability. Tenants of industrial properties also tend to have low turnover because of the heavy investment corporate tenants make to set up their space for their specific business needs.
It is common for industrial properties to have NNN leases, where utilities and other operating expenses can be passed through to a tenant. For example, a manufacturing plant may use a lot of energy to operate their equipment, and the tenant will be responsible for those expenses, not the landlord. These leases also give landlords (and investors like you) consistent and predictable income from the property.
Industrial properties can be a great investment for your business. It's a stable, safe, and versatile option that can help you grow your business.
Build-To-Rent
With home prices on the rise, the build-to-rent (BTR) sector has been growing in the United States for the last few years. Build-to-rent is a real estate asset you can use to diversify your portfolio and provides a steady, long-term stream of rental income. In a build-to-rent property, the builder constructs a property with the intention to rent it out rather than sell it. These types of investments are held longer than most syndications, and are generally held 7-10+ years.
A build-to-rent investment generally has little to no cash flow while the property is being developed, which can be anywhere from 1-2+ years. Once the BTR units start to get leased to tenants, you will be able to receive cash flow on a consistent basis.
Once a BTR community is sold, you can generally expect larger
provides a steadier stream of rental income than a traditional buy-and-flip investment. Since the property is intended to be rented out long-term, the monthly payments come in on a regular basis, which can be helpful for budgeting and cash flow purposes.
By investing in a build-to-rent property, you can help spread out your risk and minimize your exposure to any one market.
Short-Term Rentals
A short-term rental, also known as a vacation rental, is a property that's rented out for less than a month. These properties can be a great way to diversify your real estate portfolio and generate additional income.
Choosing a Short-Term Rental Property
There are a few things you need to consider before investing in a short-term rental property:
Location, location, location. Short-term rentals are typically used for tourism and traveling. A property located in a central or unique area will give you a competitive edge over nearby properties. Can you walk to town in a nice neighborhood? Are you near a national park or attraction? Do you have exceptional views or a lot of privacy? These are all questions you may want to consider depending on the market you are looking into.
You need to decide if you want to manage the property yourself or hire a property manager. Property managers can be helpful but they can also be expensive.
You also need to decide what kind of property to buy. A single-family home or condo with two or three bedrooms is a good option for a short-term rental. You can also buy a property that's already set up as a short-term rental, such as a beach house or ski lodge.
Check the local regulations on short-term rentals, as there can be very strict regulations depending on the market you are looking at.
Will you want to use the property? Many times investors will purchase a short-term rental that they intend to use for a part of the year.
Properties that are well-designed and include amenities such as Wi-Fi and TV will also be in higher demand.
In a world where people are constantly on the go and able to work remotely, the short-term rental market is booming. People are looking for a place to stay for a night, a week, or a month, and they’re willing to pay a premium for it. This presents a great opportunity for investors who are looking to diversify their portfolio with another real estate asset and ability to achieve high cash flow.
Diversifying Your Portfolio
Here at Redline Equity, we have a variety of options for you to help you learn about and invest in real estate so you can take advantage of the cash flow, equity, appreciation, and tax benefits.
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