Most people say that real estate (RE) investment is one of the most stable and profitable options for building any investment portfolio. That’s true. However, if you’ve already been a real estate investor for a while, or are looking into building up your real estate portfolio for next year, it’s important to keep an eye on two things:
- diversifying to mitigate your risks and offset taxes, and
- real estate trends going forward.
We’ll look at them in turn.
Why Diversify Your Real Estate Portfolio For 2022?
A RE portfolio is often more productive when it includes different classes of real estate investment. This applies whether you hold these investments as an individual or perhaps via a group. And the reason is, as we implied earlier, that there are certain benefits to doing things that way. These include:
- Risk mitigation: You don’t want to be maneuvered into a corner if some sectors fare less well. So diversification is a key part of reducing risk in your portfolio. On the other hand, it also increases your chances of higher long-term returns when things do go your way in a certain sector.
- Tax deduction: Investing in diverse real estate earns you a variety of tax deductions through mortgage and property tax, depreciation, passive income taxes, and others.
What to Include in Your Real Estate Portfolio
If you’re just starting to branch out into real estate investment, here are some suggestions for you to consider including in the mix.
1 Multifamily Properties
A residential property that includes more than one housing unit for families. This is a great way of maximizing your space for best profit. It also generates a consistent cash flow every month.
Investors who choose this form of real estate investment can enjoy many benefits such as
- easier management,
- tax benefits, and
- protection from factors that can affect the profitability of single family housing.
2 Commercial Real Estate
The most sought-after real estate investment as it leads to higher profit margins. This is a good next step towards diversifying your real estate investment portfolio. Commercial properties include office buildings and retail space – usually those spaces where businesses interact with the public in some way.
The main reason to invest in commercial rather than residential rentals is the earning potential. For commercial properties, the annual return on investment is much higher than a typical single family property – depending on the area, current economy, and external factors (such as a pandemic).
3 Real Estate Investment Trusts (REITs)
REITs specialize in investing in various kinds of real estate. You can buy shares in the company and they pay dividends to you.
This means that if, as an investor, you’re looking to expand your reach and diversify your portfolio, you should consider REITs as a way for you to reap the benefits of real estate diversification without adding properties to your portfolio on your own.
If you’re undecided how to diversify in 2022, this is a smart starting point.
4 Raw Land For Your Real Estate Portfolio
The least expensive way to dip your toes into real estate investment. Undeveloped land provides you with simplicity and stability that’s not easy to find in other real estate investments.
There are also many possibilities with raw land investment where you can divide the plot for resale, lease it to renters, develop new construction on it, and even hold on to it while it appreciates. The reason raw land is a great diversity option is that it offers investors a chance to switch gears into the next new opportunity that appears.
Currently, warehousing has seemed to be the “next opportunity” as online sales have pushed the need for storage and delivery to new heights! But in future, another type of use might be preferable for your raw land.
As well as choosing new types of property to invest in, you should look out for trends that will affect the property market in 2022.
Real Estate Market Trends to Look Out for in 2022
When working through diversifying your real estate portfolio, you need to consider the market trends and the impact they’ll certainly have next year.
Smart Home Adoption
Many people are embracing technology in their homes. So we expect to see a lot more investors and realtors installing smart home technology (IoT) in their rental properties or investing in ones that have this already installed. When it comes to marketing, the pandemic has shown us that successful virtual tours are possible, and smart home technology will perform well in attracting renters.
So, perhaps look out for properties that already have these features. They will bring your R.O.I. online faster.
Higher Customer Service Expectations
We live in a time when customer experience is the top priority for many businesses, due to competition. As such, residents and tenants will expect the same strong customer experience when it comes to renting real estate from you. Dissatisfied tenants will leave.
Individual investors who therefore bear this in mind and deliver on these customer expectations when renting out their property will be more successful. An empty property brings no income!
Digital Currency for Real Estate Transactions
Bitcoin is no longer a trendy financial option, as people are now able to invest and make business transactions using digital currencies. Therefore, the probability of using bitcoins and other forms of digital currency in real estate is much nearer than we expect.
Our advice is to make sure you learn about and understand the digital currency trends in 2022 before you make any digital currency transactions involving your real estate portfolio transactions.
Rise in Sustainable Living
Many people are now conscious of the choices/decisions they’re making and how these will be environmentally sustainable. One of these considerations is the cost and/or wastage of resources when dealing with property investment and management.
For this reason, many companies looking to invest in real estate say they will likely use PropTech. This means using technology and the cloud for property transactions in the same way that financial companies use technology (FinTech) to lower costs.
In the near future, this can perhaps help firms deploy the REaaS (Real Estate as a Service) delivery model.
These are four ways to diversify going forward – and four trends to keep an eye on and learn about as you consider what should be in your real estate portfolio for 2022.
Want some help?
Partner with Real Investment Professionals
Building your RE investment portfolio doesn’t have to be daunting, even when you’re first starting out. You can and should reach out to the experts in real estate investments.
At Realty Capital Partners (RCP), we welcome the opportunity to share more about RE investment opportunities that could diversify your portfolio. One of our knowledgeable real estate investment professionals will answer your questions and help you get off to a flying start in 2022. Call us on (469) 529-6024 or email us today at email@example.com.