real estate investor celebrating freedom on hike overlooking canyon


Illustration of individual putting coin in home, representing investment diversification

If you’re reading this, you’re probably already into the real estate investing game. And you’re also probably ready to level up your ROI. Any experienced real estate investor will tell you, diversification is key to bigger returns. 

Once you’ve got the basics of real estate investing down, and you’re ready to diversify, there are 8 key questions you need to ask yourself before spreading your investment out and diversifying. 

1. What Asset Classes Will You Invest In?

Man placing coin in piggy bank next to varying real estate asset classes

There are different types of real estate investments, and each has its own benefits and risks. A "class" of assets is a group of investments that have similar features and act in the market in the same way. 

By spreading your investments across different types of assets, you may be able to lower your risk and increase your overall returns. Residential, commercial, industrial, and mixed-use properties are all different types of real estate investments. 

Single-family homes, townhouses, apartments, and condos are all types of residential properties. Hotels, office buildings, and retail space are all examples of commercial properties. Warehouses, distribution centers, and manufacturing facilities are all types of industrial properties. Mixed-use properties are developments that have homes, businesses, and/or factories all in one place. 

Each type of asset has its own benefits and risks, so it's important to get in-depth knowledge about each one before you invest.

2. Where Do You Want To Invest?

A key part of diversifying your real estate portfolio is choosing where to invest geographically. When you invest in properties in different areas, you can spread out your risk and take advantage of different market conditions. If you keep all of your investments in one place, you might be more vulnerable to local economic downturns, changes in local rules, or natural disasters.

On the other hand, investing in multiple places can help spread out these risks and could make your portfolio more stable. Before investing, do your due diligence. Research and think about things like population growth, job markets, and property laws in each place. This will help you add smart, sustainable investments to your portfolio.

3. What Type Of Property Do You Want To Invest In?

Within an asset class, there are many different types of properties you can invest in. 

Residential Real Estate

Single-family homes, multi-family homes, apartments, and condos are all types of residential properties. Investing in residential properties can give you steady rental income and the chance that the property will go up in value over time.

Commercial Real Estate

Office buildings, retail spaces, and industrial properties like warehouses and distribution centers are all types of commercial properties. Commercial real estate investments can offer higher returns, but they may also require more money, a higher level of knowledge and carry more risk.

Industrial Real Estate

Factories, warehouses, and distribution centers are all considered industrial properties. Even though these are usually good investments, they can be very vulnerable to economic downturns, especially when the downturn is related to the industry that's renting the property.

Mixed Use Real Estate

Several different types of asset classes, representing real estate portfolio diversification

Other options in these categories include vacation homes, rental properties in vacation spots, and real estate investment trusts (REITs), which are publicly traded companies that own and manage real estate assets.

4. What’s Your Timeline Look Like?

When diversifying your real estate portfolio, you have to know how long you’re in for, and base your investment decisions off that. Some investments may be good for short-term gains, while others may be better for long-term growth.

But if you’re interested in short-term gains and diversify into longer-term projects, you’re not going to be very happy.

For example, investing in "fix-and-flip" properties can give you a quick return on your money, but it may require a bigger time and money investment. On the other hand, investing in rental properties can give you stable rental income and the chance that the property will go up in value over time.

Also, some investments, like development projects, may take longer to finish and start bringing in money. If you know your investment goals and how long you have to reach them, you can choose investments that meet your needs and help you reach your financial goals.

5. What’s Your Risk Tolerance?

When diversifying your real estate portfolio, it's important to think about how much risk you're willing to take on. Some investors may be more risk-averse and prefer to invest in low-risk assets with stable returns, while others may be more comfortable taking on higher risk for the chance of higher returns.

Diversifying your investments and asset classes can help you spread your risk over a wider range. By putting your money into a mix of high-risk and low-risk investments, you might be able to boost your overall returns while lowering your overall risk.

6. Is it The Right Time To Invest?

Investor with piggy bank next to clock, representing timing the market correctly

The real estate market can change depending on things like interest rates, supply and demand, the economy, and rules in the area. By keeping a close eye on these factors and changing your investments accordingly, you may be able to take advantage of market opportunities and reduce your risk. 

For example, if interest rates are low, investing in homes with long-term mortgages can give you stable returns and the chance that the property will go up in value. On the other hand, if the market is going down, investing in cheaper properties or assets that are in trouble may give you a better chance of making money.

7. What’s Your Access To Capital?

Access to capital is one of the most important things to think about when you want to invest in real estate and diversify your portfolio. Investing in real estate is usually front-loaded with capital requirements, meaning you need a lot of money up front for down payments, renovation costs, lawyers and ongoing maintenance costs.

Access to capital means how easily you can get loans, take out mortgages, use a HELOC for investing and more. To make sure you can invest in the opportunities that match your investment goals, it's important to know your finances well and have access to funding sources like loans or partnerships.

Access to capital is one of the most critical aspects of real estate investing diversification, as it takes substantial capital to start diversifying. 

8. Do You Have A Trusted Property Management Solution?

Graphic overlay of Property Management, one of the keys to diversifying real estate portfolios

It's important to think about the role of property management when you're trying to diversify your real estate portfolio. Property management is when a third-party professional or management company is in charge of running and taking care of a property.

Real estate portfolio diversification is usually about creating passive income, and proper property management is absolutely crucial to making this happen. A good property management company can help you get the most money out of your rental property by advertising it well, finding good tenants, collecting rent, and taking care of maintenance requests. They can also make sure that local rules are followed and handle any legal or financial problems that come up.


The Takeaway:

Diversifying your portfolio is essential for any real estate investor getting serious about seeing a return on their investment. And if you want to see even more of a return on your investment, make sure to check out every real estate investor’s secret weapon, Realeflow