By diversifying your portfolio, you’ll minimize your risks and maximize your potential for steady, long-term growth. That leaves you with investments that will withstand the test of time to ensure lasting, generational wealth.

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Now more than ever, investors looking to diversify their portfolios are moving away from stocks and toward real estate investing. As stock market investing becomes even more of a roller coaster ride than usual, real estate investing’s appeal has only grown. The market is typically much steadier and more reliable, and your investment is backed by physical assets, making it far more difficult for it to vanish into thin air.

That said, despite the benefits and lower risks of real estate investing, not all real estate investments are the same — which is exactly why diversifying your real estate investments is vital to long-term success in the industry. There are three key elements that should go into diversifying your real estate portfolio, whether you’re just starting out or have your eye on becoming an industry mogul.

Diversify by assets

When many first-time real estate investors think about properties, they commonly only consider single-family homes or duplexes they can turn around and rent for a profit. But that’s far from the only option on the table.

“You can invest in everything from homes and duplexes to office space, self-storage units, industrial complexes — pretty much any kind of property you can think of,” said Sherry Battle, CEO of Entrepreneur Dream Team and real estate investing educator. “Think about both the types of property and their class when you’re making your investments, and don’t be afraid to go outside of the box in terms of property types.”

Because real estate is cyclical, there are always going to be some asset classes that do well during booms and others that perform better during busts. Especially as the way people work and live continues to change, keeping an eye on regional trends and investing accordingly is a practice you should be in from the start.

Diversify by location

Real estate is a hyperlocal industry. Although your city might be booming, the town next door could be in the exact opposite spot. By spreading your portfolio far and wide, you can take advantage of those inevitable market ebbs and flows, ensuring that you always have income coming in no matter what. 

“It’s all about hedging your bets,” Battle said. “If all your real estate holdings are in one place, and that market hit a slowdown, your entire portfolio is at a disadvantage. But if you have investments spread out all over the state — or even the country — there’s less of a risk.”

“Some markets boom while others don’t, and by spreading out your investments, you’ll be able to see success across your portfolio even if a couple of properties in a couple of markets aren’t performing as well.” 

Especially for investors whose risk aversion has led them toward real estate investing and away from higher-risk investments like stocks, this element is incredibly important, Battle added. This is one of the biggest factors that maximize your portfolio’s potential for long-term growth.

Diversify strategies and hold times

No two properties or markets are the same, and your strategies and hold times should be equally as unique. Every time you invest in a new property, carefully evaluate the property’s location and the market to ensure you’re taking the right approach.

Some properties may be best pursued as a buy-and-hold, while others may be a rehab-to-rent project. In a similar vein, while you may be eager to flip and sell some properties for a profit, there may be others that would return a better investment if you held onto them. Stepping out of a one-size-fits-all mindset and adapting your strategies to suit the market will pay off in the long run.

Whether you’re new to real estate investing and interested in building a portfolio that offers long-term opportunities and security, or you’ve been investing for years and looking to switch up your strategy, you can’t go wrong by taking some time to evaluate your existing investments, understanding the risks and benefits, and setting yourself up for long-term growth through intentional strategy.

By diversifying your portfolio, you’ll minimize your risks and maximize your potential for steady, long-term growth — leaving you with investments that will withstand the test of time in order to ensure lasting, generational wealth.

Get Inman’s Property Portfolio Newsletter delivered right to your inbox. A weekly roundup of all the biggest real estate investment and property management news delivered every Tuesday. Click here to subscribe.

Victoria Kennedy is CEO of Atman Real Estate. Connect with her via email.

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