Why is Diversity Vital for Real Estate Investing?

by : Judson Voss

Just as you would plan to have a diversified stock portfolio it is also in your best interest to have a somewhat diverse portfolio of investments when it comes to real estate. You do not want to have all your stocks in one company or even one industry if you are hoping to spread out your risk and maximize your earning potential. With that in mind, why on earth would you want to do that with real estate investing?

This is a huge question when it comes to real estate, which is one of the more versatile investment options a person can find in the world today. With so many options, each carrying their own sets of risks, why on earth would you put all your efforts into house flipping or wholesaling when you could have greater profits and lower risks by spreading your efforts around a bit. When it comes to flipping houses, the investment of time, money and labor is great. The payoff has potential but the risks are a little too high for many investors to make this a full time gig. At the same time, there is no reason why you can't incorporate one or two flips each year into your portfolio.

You don't want to rest your entire real estate investing portfolio on house flipping though because it is a one shot deal and the risks are really high. You can only make money on homes you flip one time unlike investing in rental properties, which provides a smaller monthly income. The more rentals you own, the greater your income and your income potential. Wholesaling is another quick money earner for many real estate investors. It doesn't require the same amount of time, attention, and planning that flipping or even owning rental properties but can increase your network of contacts in the business and helps bring in a little bit of money every time you make a transaction.

Real estate investing is one field in which the more pies you have a hand in, the more pieces you get in the end. Who would want to limit themselves to one large piece of apple pie when there are excellent pecan pies, pumpkin pies, and key lime pies to be enjoyed for the small price of trying a little something different every once in a while.

You just might find that one of your 'lesser' pies brings bigger gold than you ever would have imagined-especially as many people expecting big returns from flips discovered when the sub prime market flat-lined recently. Having other transactions to fall back on was what saved many real estate investors from serious financial peril while costing others everything. Diversify your real estate investing portfolio so that you can avoid this risk in future real estate ups and downs.