Create Diversity And You Can Create A More Resilient Real Estate Portfolio

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By Paul Stoltz

At the first global summit on resilience, the major takeaway and “Aha!” was that diversity is so often the key to resilience. In nature, biodiversity determines how well an ecosystem can weather a traumatic adversity, like a hurricane, tsunami, deluge or drought. The same can apply to real estate investing.

 

As you think beyond your first or next property, and envision your long-term real estate strategy, how can you employ the power of diversity to create a more resilient approach—a “higher AQ portfolio”—one that can weather almost any storm?

 

Here are three simple ways to diversify and adversity-proof your real estate portfolio.

 

1) Property Type—Most investors get into a groove. They invest in one type of property over and over. It’s only natural that, if you succeed with your first apartment building, you would seek another. You’ve learned the tricks and tweaks, so why not apply that wisdom to the same formula, once again? You can. And it may work brilliantly.

 

But, as you buy more doors, you may also buy more vulnerability. Whatever adversity can hurt one apartment complex may hurt them all. Imagine if new regulations on apartments emerged, requiring them all to be retrofitted with fire sprinklers, or granting new rights to tenants, that hinder landlords’ profitability?

 

Or imagine if you invested in storage units, and a major new competitor with a superior business model exploded into your market. If you invest in multiple properties based on a single transit line being approved, one change in law can decimate your wealth. Spreading your investment across different kinds of residential and/or commercial properties can give you a more resilient position.

 

2) Geography—Many investors stick close to home. There’s good reason for that. It’s simpler, and often better to see and touch your investments. But, being too geographically constrained can also choke off your agility and options. All it takes is one unforeseen disaster in that geography to put your entire portfolio in a sinkhole. Ask anyone who survived the flooding in Calgary, local crime waves in Toronto, or the potential of an earthquake in Vancouver (heaven forbid!).

 

3) Price Point—Most investors pick and stick with their sweet spot. Again, wisdom and success is often smart to repeat. The downside is, whether you go for high, mid or low end, when that segment of the market takes a hit, everything in that segment may take a hit. How often have you seen the high or low end of a real estate market sag, when other properties fare better?

 

For decades, the best financial advisors have guided their clients to diversify. Now the world’s top scientist show it is the secret to surviving and thriving, long term. Inject their wisdom into your next move, and put yourself on the path to resilient wealth.

 

don-campbellPaul G. Stoltz, Ph.D. is the Founder and CEO of Peak Learning and the science behind Adversity Quotient (AQ) – the science of human resilience. People who successfully apply AQ perform optimally in the face of adversity — the challenges that confront us each day. Peak Learning has partnered with REIN to work with its clients to create investors who are higher performing, resilient leaders that harness adversity to excel in real estate and in life. Contact Paul at paul@peaklearning.com or see www.peaklearning.com. .

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