6 WAYS TO DIVERSIFY YOUR REAL ESTATE PORTFOLIO
We all know real estate appears to be one of the best investment sectors right now. We all know that diversifying our portfolios is important. So, what options are available for enjoying the safety and performance benefits of diversification within the real estate asset class?
In this previous post we discussed ways to hold real estate for heirs with less risk and hassle. We also covered some of the types of properties you may want in your real estate portfolio for building a legacy here. However, there are a variety of ways to invest in property, and having a balance certainly offers some protections and advantages. This is especially true when it comes to thinking about estate and legacy planning. Let’s take a look at six of them…
Publicly traded REITs have been popular for those wanting the ease of stock market investing. They became more popular as some big funds swooped down on the US property market to gobble up large amounts of distressed homes to be converted into rentals. In spite of rising interest rates which can hamper REITs, there may be some value to be found here. Just be keenly aware that these types of REITs do not offer diversification from your stock portfolio and the high volatility they can be subject to.
Real Estate Businesses
Buying more real estate related public stock ought to be approached extremely cautiously right now. This is especially true given the giant Wells Fargo scandal, and its broad acceptance as the status quo. However, the recent PATH Act brought in more tax breaks and protections for those that invest in certain small company stocks. These can be highly risky, but may offer the most growth potential.
Prime income producing properties are probably the most common type of investment held by families looking to grow their estates and pass on a strong legacy. Everyone can benefit from having a portfolio of these income producing assets. This may include single family homes or condos, commercial properties, or mixed use properties.
Private lending has been growing in popularity and is likely to continue to gain traction for some years. This is an alternative to direct investment in bricks and mortar. It means providing your capital to other investors who do most of the heavy lifting in exchange for an attractive return, and often steady passive income stream. With Trump hoping to undo some tight restrictions around this sector more opportunities may emerge for private investors in the months ahead.
Note investing is essentially another form of private lending. However, instead of financing new loans sophisticated investors purchase existing real estate notes and mortgages, often at a sizable discount.
One common theme we have seen throughout American history and its most loved wealthy families and personalities is the investment in developing and constructing new buildings. For some it has been lavish hotels or condominium buildings. For others it has been libraries and parks. What will you build and add to the landscape as a legacy project?