The Importance of diversification in your real estate investment portfolio

We all know the old saying “don’t keep all of your eggs in one basket” Real estate is no different. Diversifying your real estate portfolio creates less risk, and since you’re not tied to the highs and lows of one market, often allows an investor to achieve higher returns. At Pioneer, we believe that diversification goes much further than simply investing in multiple markets. Well rounded diversification begins with piecing the following components together in a way that works best for you:

Asset Class

Some investors prefer multifamily, some mobile home parks. Some prefer office, some self storage. The truth is, they’re all great investments, but too much exposure to one asset class can prove deadly for your investment portfolio. Imagine owning ONLY a portfolio of Blockbuster Video stores in the early 2000’s during the rise of Netflix!

Geography

Geographical diversification is one of the most important attributes to true diversification. Two years ago, New York City based investors would scoff at investment opportunities outside of the five boroughs. “Why would I want to invest in Charlotte, NC? New York City is the greatest and most desirable market in the world”

While we would mostly agree with that statement, external forces outside of an investors control, such as the New York State Tenant Protection Act of 2019, which implemented widespread changes to New York City’s multifamily rent control laws, can cause values to plummet with the stroke of a pen.

The same investors who would scoff at an investment in Charlotte, NC two years ago are now fighting tooth and nail to uncover opportunities in that region.

Cash Flow vs. Appreciation

Some real estate investments provide investors with cash flow, some provide appreciation, and some provide both. An investment in a mobile home park that will provide high yield monthly distributions is just as important for your portfolio as the trophy corner office building in mid-town Manhattan that may not pay you a dime until the property is sold for a profit.

Sponsor / Operator

Investing with a number of different operators is an often overlooked component to diversification. It takes time to get to know an operator, and it takes even more time to trust them as a steward of your hard earned money. Take the time to build your network of qualified and trustworthy operators. Your portfolio will thank you.

All investment portfolios, even the “biggest and best”, will sustain periods of loss. However, prudent diversification of your real estate portfolio can help you mitigate those losses and boost your portfolio’s return potential.

Pioneer Communities aims to provide it’s investors with the missing pieces to their diversification strategy through investments in niche asset classes like mobile home parks.