To limit your risk and grow your real estate portfolio, it’s important to diversify the properties you hold in that portfolio. Financial experts are always encouraging investors to diversify, and there are several good reasons for this. If one part of the Philadelphia real estate market begins to falter, you’ll still have plenty of strength in the other properties you hold to make up the losses. A diversified portfolio also gives you new ways to measure how well your income producing properties are performing.
Consider acquiring properties that are outside of the general investment map you follow. This doesn’t mean you should just start buying everything that shows up. You still have to be strategic. You still have to follow your investment goals. Thinking creatively about what you buy and how you finance those purchases can have a huge impact on your investment portfolio.
Buy a Blend of Single-Family and Multi-Family Properties
A lot of investors start out with one or two single-family homes. This make sense. They’re excellent investments, and following the income and expenses is often pretty straightforward. And, single-family homes will always make great investments, especially when you’re buying rental property in Philadelphia and the surrounding areas.
Single-family homes are always in demand and you’ll earn more in rent than you’d earn with a rental unit in an apartment building. Well-maintained single-family homes will do very well if there is lots of square footage, an outdoor space, and an attached garage. Your single-family home will also appreciate quickly and reliably. There are dozens of other good reasons to buy a single-family home or to make this type of investment the cornerstone of your portfolio.
But, don’t stop there.
To diversify your portfolio, consider investing in multi-family properties as well. There are many ways that this can help you earn more with your rental investments. They’re going to provide more income for you and less risk. Instead of collecting one rental payment every month, you’ll collect two or three or four. Maybe 50 if you decide to buy a whole building.
This large pool of tenants and properties will protect you against vacancy risks. If one unit is vacant, you still have income from the other units.
Lower risk and higher cash flow are excellent reason to invest in multi-family homes as well as single-family homes. In the Philadelphia rental market, there are plenty of opportunities for multi-family investments as well as single-family acquisitions.
Invest in Commercial Properties
An entire portfolio of residential properties can do very well, but if you add some commercial properties to your investment strategy, you’ll really maximize your potential for diversity. Commercial real estate can look much different in terms of negotiating the deal and reaping the rewards. Lease terms are typically longer and more favorable to property owners. If you buy the right property, you’ll have lower vacancy rates, higher rents, and less maintenance than with residential units.
Commercial properties can be anything from retail space to office buildings to industrial or warehouse spaces. You’ll need to be willing to learn a different set of legal obligations and best practices, but commercial properties can really help you boost your portfolio’s performance.
Be Creative with Investment Financing
Another great way to diversify your real estate portfolio is by experimenting with your financing options. Paying in cash always gives you extra flexibility and a competitive advantage when you’re negotiating purchase price and sale terms. Many investors will always prefer to leverage their assets with a mortgage.
There’s plenty of space between cash and traditional loan. You might find a better deal with owner financing. You usually won’t need a large down payment, and if you structure the deal so that you’re primarily or completely paying the principal, you’ll find your cash flow and your ROI can improve quickly. You can also use a platform like the 1031 exchange to diversify. This is a great idea for deferring taxes and acquiring new properties.
If you’d like to talk about investment strategies and how to diversify your portfolio, we’d love to be part of the conversation. Contact us at TCS Management for some good ideas.
TCS Management is a full service property management company headquartered in Philadelphia, Pennsylvania, also serving Cherry Hill, NJ, Wilmington, Delaware and the surrounding areas. We focus on single-family and multifamily residential property management of homes, condos, townhomes, and apartment buildings.