Real Estate Crowdfunding is an exciting place to invest, but as with any asset class you need to keep your portfolio diversified. Diversification is achieved in a stock portfolio by owning many different stocks in different industries that are not correlated. What are the best ways of diversifying a portfolio of real estate crowdfunding then?
Platform – The first and easiest way to diversify your crowdfunding real estate assets is through more platforms. You can currently invest in nearly a dozen different platforms. Many are specialized in debt, some in equity and some are a mix. Through using various platforms, you’re giving yourself access to a distinct community of investment opportunities. You really want to be invested on at least 3-5 different platforms to get the maximum diversification in this area.
Geography – Selecting assets with various regional footprints is a very successful way of diversification within your R.E. crowdfunding portfolio. A good example of this is getting properties in your portfolio that are situated in the south-eastern part of the United States, and those in the West. (Are you interest to learn more about U.S. property for investment? Read more.) You can weather the storm better by getting a large presence across the U.S. (and potentially globally) should a single geographic region see a local market decline. We suggest beginning with at least 3 separate geographic locations, but as you broaden your portfolio a very vast diversification in this region (with 10-20+ locations) will really help protect your portfolio from lower than expected returns.
Property Type – Another great way to diversify your portfolio is through various types of property. There are so many different types of properties available – Hotels, Multi Family, Self Storage, Mobile Homes, Retail, Office, and so many more. Through spreading your assets with the help of several different types of properties, you cover yourself should any single form of property begin to have issues with lower than expected returns, attract new tenants, etc. The best way to start diversifying your portfolio by form of property when you start is to make sure that each of your first investments is in a different type of property.
Although in Real Estate crowdfunding there are many ways of diversifying, the three above approaches are the easiest and most efficient for a new investor. You will secure your portfolio from putting all your eggs in one basket by using increasing diversification strategies and optimizing your returns.