There are risks involved in any type of investment, including property investments. Which is why, generally speaking, financial experts recommend a diverse investment portfolio. They recommend this as a way to reduce risk and increase gain. If you diversify your property investments, you lessen your risk and provide additional benefits.
Don’t put all your eggs in one basket
To avoid this old pitfall, diversifying your property portfolio is the best and most recommended solution. There are a few different ways you can go about diversifying your property investments, such as: location, pricing and building classification. Diversifying your properties in these three ways can help to reduce your risks and structure your investments so they are as beneficial to you as possible.
Variation of investment location
You will want to avoid purchasing all of your property investments within one suburb or area. This is so that, if that suburb undergoes any major infrastructure changes that negatively impact the area – such as road changes, the shutdown or move of any major businesses, etc. – you avoid having all of your investments impacted. If you spread out your investments across the Gold Coast, and even invest in Brisbane or other parts of Australia, you are essentially lessening your risk.
Invest in different property price points
When looking to diversify your property investments, you need to also look at purchasing property within different price points, especially if you want to free up equity. For example: you have $1,000,000 to spend on property investments. If you purchase one property for $700,000 and another for $300,000, you have the option available to you to sell the $300,000 property in order to free up the equity while continuing to accrue income in your other property investment. Again, this has reduced your risk as well as opened yourself up to more purchasing possibilities and potential benefits.
Diversify the classification of your properties
That is to say, purchase different types of property. Don’t simply purchase residential property – should you have the expertise – consider also investing in commercial or industrial property. Even within residential property, should you feel most comfortable investing in this area, consider alternative types, such as: units/apartments, townhouses and homes.
The fundamental rule of property investment diversification
Quality over quantity. Diversifying is important in reducing investment risk, but you want to make sure you are buying valuable properties that are going to appreciate in value. Simply purchasing a whole bunch of cheap properties, generally is not as beneficial as purchasing one or two quality investments.