Diversifying is something that is often preached by financial professionals and it happens for a reason. Whether it’s going into unrelated investments like stocks or bitcoin, or even if you are diversifying within the real estate space – it makes sense to do so.
Three Ways to Diversify Your Real Estate Investments
Many of us are buy and hold rental property owners and I personally think it is the best way to go with real estate. However, that does not me we shouldn’t diversify in the space a bit.
Let’s see what some of the options are:
1.) Private Note Investing
This truly is one of the most passive ways to invest in real estate. You basically become the bank. No property to maintain or tenants to deal with.
Your return is whatever the interest rate is on that note. If the borrower defaults than you have the option of foreclosing and could end up with a property that way.
Be sure that any note you originate eaves some equity in the property, for instance lending at a 75% loan to value (LTV) leaves you some meat on the bone if god forbid you did need to foreclose on the borrower.
2.) Publicly Traded REITs
Real Estate Investment Trusts (REIT) are available on the stock market exchange. They are publicly trade and represent real estate investments.
It offers an easy way to get exposure to a completely different niche of real estate. For instance, there are REITs that are fully invested in assisted living facilities.
If you like the idea of assisted living as an investment it certainly is a lot easier to get exposure using a REIT than it is trying to start a facility yourself.
3.) Real Estate Syndication
This is another way to get exposure to something you might not be able to otherwise. A syndication is basically when an operator has a large commercial project that needs funding.
Participating investors get a percentage ownership in the property relative to their investment size. Something like this can give an investor the opportunity to get involved in a high rise building project or the like that would normally be out of reach.
Be sure to check on the eligibility, often accredited investors only qualify.
The above are just a few examples on how you can diversify within the real estate space. As individual investors we are often focused on small residential multifamily property, but there are clearly ways to get exposure to all different types of investments in the space.