Real estate diversity is something many investors seek in order to strengthen their financial position. Diversity can be a very powerful tool to have up your sleeve – when one sector, let’s say retail, is down, another sector such as residential may be going strong, and vice versa.

But building a portfolio that’s diversifying without, as stock market investors so cleverly put it, “diworsifying isn’t easy. One has to consider a range of additional factors on top of what usually makes a great investment property – metrics like high yield and low vacancy.

That’s what the team at Patrick Leo are here to assist you with. Let’s get into property diversification and how to starting building a versatile portfolio:

What is a diverse real estate portfolio?

A diverse real estate portfolio is a collection of assets that differ in purpose, size, price and geographic location, among other factors. The point of a diverse real estate portfolio is to, as the old saying goes, ‘not put all of one’s eggs in one basket’. A diverse real estate portfolio can look like:

  • Diverse property types including a combination of houses, units, retail stores, offices
  • Diverse geographic regions including buying in different cities, or balancing regional and metropolitan areas.
  • Diverse levels of risk, buying mainly stable, reliable properties but allowing a little room for higher risk options, too.

Benefits of a diverse real estate portfolio

There are several benefits in building a diverse real estate portfolio:

  • Protection from vacancies

    Let’s say you’ve got $5mil to spend. You spend it all on one single warehouse which is currently leased for 2 years to a floor sanding supplies company at 5% yield ($250,000 per year). Everything is going great – until the lease comes to an end and you struggle to find a new tenant. If it takes you 6 months to find a new tenant, that means you’ve lost a whopping $125,000 on a vacant property.

    Now, we’re not saying that buying the warehouse is necessarily a bad or risky idea, but this scenario is something to consider. If you diversified with your $5mil, and bought a few houses, a few units, and a commercial property, there’d be much less chance of all of those properties being vacant for a period of 6 months.

  • Protection from market fluctuations and the future

    While market fluctuations affect real estate far less than other types of assets, they’re still something to consider. For example, investing all your money in petrol stations when the world is turning to electric cars may not be the best long-term plan. Diversifying is key to a future-proof portfolio.

Building a diverse property portfolio is difficult, but with the help of Patrick Leo, it’s a rewarding and achievable goal. We’re Australia’s specialists in buying investment property, working with dozens of clients with large, diverse property portfolios. Get in touch with our team to start building your dream property portfolio today.

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