Advantages of Diversifying Properties

One of the rising trends of the last few years and one picking up steam is the diversification of rental asset portfolios.

Residential property investors are reviewing their properties and culling out those that are underperforming or have dim outlooks given the economy, costs, tax and regulatory disadvantages.

Aside from technology adoption, portfolio diversification is perhaps the most intelligent strategy to remain profitable long term. Diversifying your portfolio by varying property sizes, types, and locations can help manage risk and lead to higher yields. In this post, we take a closer look at how landlords are adjusting their property management businesses via diversification. Let’s find out more.

Why would a property management software company enable portfolio diversification management?

Enabling Management of a Diverse Portfolio: ManageCasa

ManageCasa™, an authoritative voice in property management software technology is ahead of the curve on this trend. Our software platform is designed to handle a diversity of rental assets and accounts which include: apartments, single-family homes, fourplexes, multifamily buildings, marinas, storage businesses, modular homes, built-to-rent developments, and commercial properties.

As the collapse of the commercial and office segment took place, asset investors sought out alternatives. Retail, office and commercial was being converted to mixed-use and affordable housing in response to exceptional demand in the undersupplied residential market.

When a software technology allows you to manage different asset types via one single dashboard with tools to ramp up revenue and profit while minimizing costs, why wouldn’t you switch? Managing better translates to higher ROI.

How To Diversify Your Property Portfolio

There are generally 5 different ways to diversify a real estate portfolio:

1. By Asset Type: a simple strategy of buying into any profit opportunity available and optimizing it. From apartments and single family assets to select retail, industrial, office space, marinas and self-storage, each type of asset has its own profit potential.
2. Geographical Diversification: Managed virtually, properties in distant cities or countries become viable and in fact may represent the best gross rent yields and as a hedge against potential downturns in any single market​​.
3. By Asset Class: buying properties in different asset classes as they rise and peak during economic cycles. This means assets in Class A, B, or C neighborhoods and buildings. This could range from mobile homes to apartment blocks, to condos and luxury apartments to new single-family houses. For instance, luxury apartments may be in demand during economic booms, while more moderately priced apartments might see higher demand during recessions. Land too is an investible asset that where regulations make available lots very valuable.
4. By Strategy and Hold Time: using different investment strategies and hold times for each property such as a mix of buy-and-hold properties, property flips via Opportunistic (high risk, leveraged deals, short term flips), Value-Add (enhancing the property’s cash flow by renovation or redecoration), Core-Plus (acquiring mid-risk high-quality assets in secondary locations or slightly dated assets in primary locations), or Core strategies (low risk, modern, or very well-located real estate which can generate stable annual income returns over the longer term).
5. By Active vs. Passive Income: a mix of actively managed rental properties along with passive real estate revenue opportunities lets landlords access the best residential property and commercial assets into one manageable form.

Average ROI in the U.S. Real Estate Market

According to a recent Forbes report, within the U.S. real estate market, the median return on real estate is 8.6% annually (S&P 500). Residential properties generate an average annual return of 10.6%, while commercial properties average 9.5%, and REITs 11.8%. The trend has been is toward residential real estate as the economy cools while housing is in short supply.

What are Real Estate Investment Trusts Investing in?

REITs are a potential alternative to investors. These large funds buy investments in a variety of real estate assets. Keeping an investment eye on publicly funded REIT’s and what they buy and sell gives you first-hand knowledge of what assets have the best potential.

According to reit.com, during the first quarter of 2023, these funds have significantly shifted their allocations from traditional sectors to modern economic sectors. Specifically, 54% of REIT assets were in the traditional property sectors of residential, office, retail, and industrial assets while 46% were in new and emerging sectors like data centers and self-storage.

Specific Sector Allocations in REITs:

• Industrial: The allocation to industrial properties grew from an 8% share of REIT assets to 15%.
• Residential: The residential sector remained consistent, with an average allocation of around 20%.
• Office: Office properties saw a significant decline, dropping from a 17% share to just 3%.
• Retail: Retail allocation decreased from 25% to 15%.
• Among new sectors, are infrastructure (including cell and communications towers (12%)), data centers 9%, health care (10%) and self-storage (7%).

There are plenty of investment strategies you can deploy for your rental property portfolio and by simply investigating the possibility, you might discover opportunities you’d never understood. Find out more about the best types of properties to buy.

Knowing which properties to buy and how to manage them, lets you optimize your rent yields and get the best value for your investment.
The best types of rental properties depend on your resources, management skills, and investment goals. Weigh each type of asset from apartments, single-family houses, multifamily, mobile homes, marinas, self-storage, student housing and even commercial properties.

Find out more about the features of ManageCasa now.

See more on the best cities to buy rental property and which have the highest rent prices.

• 13 Benefits of Diversifying your Real Estate Portfolio: https://trepryor.com/blog/13-benefits-of-diversifying-your-investment-portfolio-with-real-estate/
• Real Estate Portfolio Diversification from Yahoo Finance: https://finance.yahoo.com/news/build-diversified-real-estate-portfolio-152827463.html