Diversification of Your Investments – Why & How Should You Do It?
If you know a thing or two about the stock market, you probably already know what a roller coaster ride it is for the investors. Your money may grow steadily over several months, but it might all crash and disappear overnight! Real estate investment, on the other hand, is much less precarious. Because they are backed by physical assets, real estate investments tend to be a lot steadier than stocks. However, according to a list of investment companies in UAE, despite the lower risks and higher benefits, real estate investment can be tricky too, especially for beginner investors.
Consult any real estate agency in Dubai and they will tell you that not all real estate investments are equal. That is why the best way to minimize risks is to expand and diversify your investment portfolio. It is also important to diversify your investment portfolio across different geographical markets, asset types, and asset classes. Here, we will discuss why and how you should diversify your real estate investment portfolio.
Why should you diversify your real estate investment portfolio?
No one can predict exactly how an investment will perform. However, we can make an educated guess based on historical data. We also know that recessions and corrections occur in cycles. That means even if we are not going through one right now, it might present itself in the future. Similarly, if we are going through a recession at present, we can rest assured that a recovery period is coming soon. That is why it is critical to hedge your bets. You need to be prepared enough to be able to weather the storms and make your investment grow in the long term.
Regardless of the type of investment you are making, you should not put all your eggs in one basket. As per the list of investment companies in UAE, diversification of portfolio is the key to success in real estate investment. It is the only way to protect your investment and make sure that it keeps performing well, and the best part is that you can diversify within real estate without needing to dabble in cryptocurrency or stocks. Moreover, when you have the support and guidance of a reputed real estate agency in Dubai such as RiseUp, you should take full advantage of the most powerful tool at your disposal.
How should you diversify your real estate investment portfolio?
There are several ways to diversify a real estate portfolio. Different experts might suggest different strategies as you might find out after consulting a list of investment companies in the UAE. At RiseUp, we employ various tactics and strategies when diversifying our clients’ investment portfolio. Here are some of the top ways we diversify our real estate portfolio.
Diversifying by geography:
Ask any reputed real estate agency in Dubai, and they will tell you that real estate is hyper local. That means the performance rate may vary greatly from one region to another. While the real estate sector in one city might receive a significant growth, in another city, it might experience a slowdown. Having all your investment properties in the same city can prove to be disadvantageous. If the area experiences a slowdown, your overall portfolio will suffer and you will incur tremendous losses. That is why diversifying your investment across different geographies is crucial.
According to the list of investment companies in UAE, investors should focus on a few critical factors when diversifying their portfolio based on geography. You should get investment properties in markets with the highest population growth, job growth, and job diversity. These markets are most likely to stay on the path of strong growth, which makes them the safest bets.
Diversifying by asset class:
Another way of diversifying your investment portfolio is by asset class. The top real estate agency in Dubai might suggest you to invest in a single-family residential property while also expanding your investment by getting into commercial real estate and multi-family residential properties. This is the best way of maximizing your returns. Since each of these properties belongs to a different asset class, you can expect to see stronger returns in different sections of the market cycle. Sticking to a specific asset class might expose you to high risk.
For a beginner, this might seem like a risky move. If you have always dealt with residential properties, investing in commercial real estate might seem daunting and even a bit uncertain. On the other hand, if you have never considered going beyond the single-family residential property market, getting a small multi-story apartment building may seem like a gamble. Though you might like to stick to what you know, the only way to safeguard yourself as an investor is to be willing to try new and different strategies. A capable real estate agency in Dubai can help you diversify your portfolio by asset class while keeping your preference in mind.
Diversifying by risk profile:
When consulting a list of investment companies in the UAE, most investors have a common question – how to reduce exposure to risk? The best way to do that is by diversifying your portfolio across risk profiles. What is a risk profile and how do you assess a property’s risk profile? Risk profile is a term used when describing assets and investments. It helps you determine how stable your assets are and how much cash flow it can potentially generate. Once you figure out the answer to these questions, you will have determined the risk profile of a particular asset.
For beginners, the safest choice would be stable, turn-key, core assets. If you want simplicity, the stable assets are ideal for you. Then there are value-add properties that might require some updating. Though you would have to invest both time and money, you should expect strong returns once the property is back in good shape. Here, the trick is to perfectly execute the strategy. Lastly, a list of investment companies in UAE vouch for distressed assets. These properties require the most work before you can rent them out and make money from them. The best part about this risk profile is that you can get the property at heavily discounted rates. However, this one requires the highest level of commitment and a solid business plan.
If you are unsure about how you can diversify by risk profile, hiring a real estate agency in Dubai would be a huge help. An agency such as RiseUp can guide you in the right direction.
Diversifying by passive and active investing:
Professionals from a list of investment companies in UAE advise their clients to go for a combination of active rental properties and passive real estate syndications. Rental investments typically mean small residential properties, whereas real estate syndications include large commercial properties such as apartment buildings. Moreover, when handling your own rental properties, you can create the business plan and manage the asset yourself. However, when working with a syndication, you can benefit from the expertise of the syndicators.
Diversifying by hold time:
Besides changing your investment strategy, you can also experiment with the hold time of investments to diversify your portfolio. You may be experienced in dealing with buy and hold rental properties. However, you might want to try the BRRRR strategy, which stands for buy, rehab, rent, refinance, and repeat. Diversification of investment strategy, even within the same geographical market, can prove to be beneficial. You should also consider diversifying the hold time. Having a mix of short-term and long-term investments will pay off nicely.
Is there more to diversifying your real estate portfolio?
As per a list of investment companies in UAE, diversification of portfolio is one of the more complex topics of real estate investment. There are several factors that you need to take into account before strategizing your next move. The first thing you need to understand is that the process might be outside of your comfort zone. You may not want to dabble in areas where you have no experience. That is why you must consider hiring a professional real estate agency in Dubai to help you out.
A reputable real estate company such as RiseUp can be highly beneficial for you. Our in-house team consists of investment advisors with a deep knowledge of diversification. With their help, you would be able to diversify your portfolio with the least amount of stress. Once you have a strategy for diversifying your real estate portfolio, we will help you find the properties that fit that strategy best. We would also connect you to mortgage professionals, brokers, vendors, and other experts if and when you need them.
Whether you are a beginner or an experienced investor, diversifying your investment can be a fun and exciting process. It will certainly be an experience that you will remember for the rest of your investment career. You can make it a good one by hiring the right professionals from the fields of real estate and investments. Get in touch with RiseUp today!