If you do not know much about real estate investing, you are not alone.
There are many people out there that have grown up and lived their lives, not being taught how to properly invest their money.
If you have somewhat of an interest in investing, one thing that you will commonly hear is that it is a good idea to ‘diversify your investments’.
What exactly does this mean?
Diversification is the act of spreading one’s investment over a number of investment vehicles. These vehicles differ with respect to their risk level, whereas some vehicles are very risky and others are much more conservative.
The objective of diversifying is to mitigate your risk. As such, if one of your investment under performs, you will have other investments that will be performing better. As a result, the overall performance of your investments will not be significantly impacted in a negative manner, if a portion of the investment under performs. There will be other investments that you own that will be performing better, that will be able to pick up the slack.
The principle of diversification should always be used with real estate investment.
There are many hardcore real estate investors that only subscribe to one way of investing in real estate.
For instance some real estate investors live and die by the buy and hold strategy.
This strategy is where a real estate investor purchases a rental property, rents the property out to a tenant, holds it for a period of time, and then sells it for a profit.
Another common real estate investing strategy is Rent To Own. This is a strategy where a real estate investor acquires a home, and rents it out to tenant/buyers. The tenant/buyers rent the property from the investor with the option to purchase the property at a later, predetermined date, for a predetermined price.
The above 2 strategies are the ones I feel most comfortable speaking on, as I know about these strategies. There are many other strategies that are used by real estate investors. Investors also flip houses, rehab ugly looking houses, and wholesale houses as well.
I can confidently say that in Canada, wholesaling and rehabs are not as commonly done, as they are in the United States.
In Canada, the most popular real estate investment strategy that is used by individual investors is the buy and hold strategy.
Why Real Estate Diversification is important to you
Real Estate Diversification is important to you because through diversifying your real estate assets, you are able to learn which investment strategies you like the best, and which ones you least like.
If one investment strategy does not work for you, you will have other investment strategies to fall back on.
For example, flipping is an investment strategy that does not work well in all real estate markets. Sometimes investors participate in flips and end up breaking even on their funds invested, or even worse, they end up losing money. If at the same time this same investor held buy and hold properties in their portfolio, if they are strong cash flow properties, then these properties will continue to perform well, even though the flip just flopped!
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