How to Diversify Your Investments Away from Wall Street

How to Diversify Your Investments Away from Wall Street

Diversification is a fundamental principle of investing that ultimately helps you to optimize your return while mitigating risk. Many investors focus heavily on Wall Street investments, such as stocks, ETFs, and mutual funds. While it is important to diversify your investments across these assets, it is equally important to have a broader look.

Alina Trigub is Managing Partner and Founder of SAMO Financial. This is a boutique equity firm based in New York City that actively helps high earners invest passively in commercial real estate. She spoke with Joe Fairless about how she helps investors expand outside of the stock market to reap rewards from diversification.


Starting with Syndications

Trigub’s professional career was originally rooted in tax accounting. Because of this, saving money on taxes is understandably at the forefront of her mind. At the same time, she works to preserve wealth despite stock market crashes. Initially, Trigub dabbled in syndication several years ago. Through her personal experiences with syndications, she realized that she could preserve her wealth, invest heartily, and reduce her tax liability all through commercial real estate investing.

She was so passionate about syndication through her personal experiences that she launched her own company, SAMO Financial. SAMO Financial’s mission is centered around helping others enjoy the benefits of passive real estate investing while saving money on taxes and preserving their wealth. Rather than give outright advice, she shares her knowledge with her clients and supports them in making educated decisions.


Managing the Ups and Downs of Investing

Notably, Alina Trigub has passively invested in the same real estate projects that her clients are invested in. This includes apartment properties and other asset classes. As a result, Trigub is as exposed to the ups and downs of real estate investing as her clients are. While they are passive investors, they are still impacted by the same factors that general partners in a syndication may be exposed to.

For example, Trigub talks about one of her investment properties being fined because the tenants decided to use a hole behind the multifamily property as a dump. The town fined the group hundreds of thousands of dollars, and this impacted the property’s cash flow for several quarters. In addition to missing out on revenue for those quarters, Trigub learned a valuable lesson.

From that point on, she has learned much more about the property management company in place before committing to a project as a limited partner. In addition, she asks about how frequently the management company and the managing partners will interact about on-site, relevant factors.


Mitigating Risk Through Diversification

As is the case with many first-time commercial real estate investors, Trigub initially chose to invest in apartment properties because they were relatable to her on a personal level. However, simply diversifying away from Wall Street and into apartment complexes was not enough for her or her clients. They wanted to break into new markets, explore differences between D+ versus B-class properties, and even invest in other real estate assets classes.

Today, Trigub and her clients are invested in a variety of properties that range from mobile home parks and self-storage properties to more than 1,200 multifamily units. Through such diversification, she has been able to further mitigate risk.

For example, self-storage units are sought after by those who are downsizing in a recession. While the profitability of other investments may wane in such market conditions, self-storage rental income holds steady or even increases. She also states that mobile home parks generally have long-term tenants, and this is particularly true if the park only owns the land, and the tenants own their own homes.


Considering Potential Complications

While Trigub sees the benefits of diversification into multifamily and other real estate asset classes, she is aware of the risks and downsides.

For example, she states that the upkeep and management efforts for an apartment complex are substantial. Whether a property is self-managed or professionally managed, there is a need to closely oversee the property on a daily basis. If you hire a professional property manager, someone needs to be in close communication with the property manager to ensure that he or she is doing a good job.

If you diversify your investments into self-storage units, the demand for those units can wane in a good economy. With a mobile home park, mobile homes lose their appeal after a few decades. There must be a solid strategy for dealing with older mobile homes that the park and the tenants no longer want.

If she was presented with three projects from those asset classes, she would not lean heavily on a specific property type. Instead, she would deeply look at the sponsor’s experience and track record. Likewise, she would review the location of each property in its market and market conditions.

Because Trigub focuses on diversification to preserve wealth and to mitigate taxes, she also would determine which property is better positioned to absorb stress in a recession. While asset appreciation is important, she wants to see that the property would continue producing a profit even if a recession were to hit tomorrow.


Final Thoughts

Going forward, Alina Trigub sees the continued benefit of education for herself and her clients. Just as she serves clients by educating them about their options, she takes the time to educate herself in the same way.

She has personally experienced financial loss by not doing her due diligence, and she learned the value of education first-hand as a result. In addition to learning as much as possible about a property and the partners ahead of time, she sees the incredible value of learning lessons from each project that she participates in.


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High-Performance Real Estate Investing With Nonperforming Notes

High-Performance Real Estate Investing With Nonperforming Notes

Great entrepreneurs often share a special talent: They can turn bad situations into good ones. They can earn profits from seemingly unprofitable properties and take opportunities that might scare many other businesspeople away.

Paige Panzarello epitomizes this ability to spin straw into gold. As a Simi Valley-based entrepreneur and investor, Paige is responsible for real estate transactions totaling more than $150 million.

What’s particularly fascinating is that much of Paige’s income now comes from nonperforming notes — in essence, loans that are going unpaid.

Paige’s story provides valuable lessons, especially in terms of the personal attributes that are crucial to professional success.


1. Boldness

About 20 years ago, Paige started out in real estate. She inherited a number of properties in California and Arizona when her grandmother passed away, and she decided to turn that bequest into a business. Paige began by overseeing 38 residential units in Arizona townhomes.

In itself, the decision to manage those properties rather than sell them was bold. A high percentage of their units were unoccupied. Taken together, the properties were $4 million in debt. On top of that, Paige knew nothing about the real estate industry at that time.

Paige was unrelenting, however. She gathered real estate experts around her, and she learned new things all the time. It helped that she was in the habit of asking questions constantly.

In time, Paige compiled her own real estate investment portfolio, which included a sewer treatment plant that her grandmother had left to her mother. She increased that plant’s output, so to speak, before selling it to the local government.

Moreover, Paige didn’t stop at real estate. She also created a construction company with 36 employees. And, when she founded this business, she didn’t know anything about construction. But she soon mastered that field as well.

Paige’s construction firm handled its own projects along with those of other companies. Most of them were located in Arizona, and some were in California.


2. Integrity

Integrity is vital to Paige. For example, after the economic crash of 2008, she sold many of her assets to stay afloat rather than declare bankruptcy. All told, she lost about $20 million in cash, but she managed to pay back everyone she owed. As a result, she now views that painful chapter in her life as a learning experience.

For a while after the crash, Paige avoided real estate investments altogether. Instead, she founded small businesses in other fields. One was a teeth-whitening business, a company she still owns.

However, those smaller companies never provided the personal fulfillment that real estate investing did. And they certainly didn’t provide the cash flow. Paige realized that she couldn’t stay away from her true calling, and she returned to the profession she loves.


3. Tenacity

Unfortunately, by this point, Paige had sold off every real estate asset she once owned. She had to start again from scratch.

Instead of looking back with regret, though, Paige focused entirely on the future. She rebuilt her real estate brand quickly and forcefully. She became active in wholesaling, tax liens, and tax deeds. She fixed up and flipped properties, too.

Most important of all, Paige started learning about real estate notes, which changed the course of her career.


4. Finding Positive Opportunities in Negative Situations

Earning money from a nonperforming note is a terrific example of turning a liability into an asset.

Basically, a note is a legal document through which a borrower promises to pay back a lender. Of course, for various reasons, borrowers sometimes fail to make those agreed-upon payments. In such a case, an investor might purchase the note from the lender.

As a result, the lending institution gets some or most of its money back and no longer has to worry about missed payments. And the buyer will try to make money from the note.

Investors can acquire nonperforming notes at steep discounts. At one time, Paige was able to buy them for 40 to 55 percent of their value. The price now tends to range from 55 to 62 percent, which is still a significant bargain.

Asset managers bring these notes to Paige’s attention. She and her team sometimes buy bundles of notes, which are called tapes. Other times, they’ll sift through tapes to find the most promising notes.

While there’s some competition in the note-purchasing space, buyers can be surprisingly collaborative. They’ll often bring each other leads, for instance, or find ways to divide up tapes among themselves.

Furthermore, note investors occasionally combine their money to purchase tapes together. They then split the monthly payments. This strategy can be ideal for closing deals whenever tapes are massive and expensive.

But how does Paige actually make money from nonperforming notes? Well, once purchased, such a note goes to her loss mitigation team.

Those professionals will rely on one of 23 methods to make money from the note, techniques they call exit strategies. In most cases, they’ll employ one of these four exit strategies:

  • Foreclosing, which is Paige’s least favorite option.
  • Arranging a short sale, which means selling the property for less money than is still owed.
  • Seizing the property’s deed as payment for the loan.
  • Collaborating with the borrower to help that person pay the mortgage once again. This choice happens to be Paige’s favorite.

Before Paige buys any nonperforming note, she and her colleagues will carefully study the situation to determine the optimal exit strategy.


Don’t Be Afraid to Fail

Summing up, Paige Panzarello believes two attributes are most responsible for her professional accomplishments: her due diligence and her unwillingness to fear failure. And, along the way, she’s been able to aid many borrowers in paying their mortgages. It’s a great example of a successful person helping others turn difficult situations around.


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Diversifying Your Portfolio Across Asset Classes & Markets

Diversifying Your Portfolio Across Asset Classes & Markets

Recently, we had the opportunity to sit down with Matt Shamus, who is an experienced real estate investor and a former tech industry worker. He is also one of the founders of Driven Capital Partners, which is a private equity firm that is headquartered in San Francisco. During the conversation, Shamus discussed how his personal investment experiences have emphasized to him the importance of diversifying your portfolio. Because of those experiences, his “best ever” advice is to diversify your portfolio across markets and asset classes.


Getting Started

Shamus started investing in real estate many years ago when he was still working at Facebook in San Francisco. He initially got interested in real estate after he sold his mother’s house and turned a large profit. Shamus saw how lucrative real estate could be, so he was inspired to buy older and rundown homes, fix them up and run them as long-term rental properties. Over time, several other people asked him to invest their money in a similar fashion, and this was how Driven Capital Partners was established.

While some investors focus on fix-and-flip deals, Matt Shamus is a long-term investor. His goal is to build a huge portfolio of solid commercial real estate projects that can take him to and through retirement. Even though he is only 35 years old, he is building a portfolio with retirement in mind.


Passion for Deals

Shamus has admitted that he and his partner at Driven Capital Partners initially focus on finding deals that they are excited about and that they will devote their own funds to. When they find a deal that they like, they will then offer it to their clients as a passive investment opportunity. However, he and his partner may be passive investors when they are breaking into a new market that they have no prior experience in.


Building Confidence

Matt Shamus does more than advise others to diversify their portfolios. He lives by that advice. Through his private equity firm, he controls approximately 700 multifamily units as well as a mixed-use development project and roughly 105,000 square feet of commercial real estate. Because he has extensive experience with a variety of commercial real estate property types and has the confidence to look at opportunities in other markets, he has been able to convert an office building in downtown Santa Barbara into a multifamily project.

This specific property was originally constructed decades ago as an apartment building, and it was later converted to offices to meet the city’s needs. Now, the city has a strong demand for apartment units again. With this in mind, the framework is in place for an easy conversion, and the zoning was already set up before Shamus offered the deal to the investors at Driven Capital Partners. Specifically, Shamus estimates that approximately 20 to 25 passive investors contributed to the deal. Because Shamus values integrity and knowledge, the investors were aware of the risks as well as the potential return for contributing their funds upfront.


Leaving Your Comfort Zone

Shamus’s advice for diversification extends beyond property type. He recommends diversifying into different geographic markets and pooling together different teams strategically. Through diversification, he has access to more lucrative deals and is able to assemble stronger support teams when he ventures outside of his comfort zone. However, this does not mean that Matt Shamus jumps into every deal that is thrown his way. In fact, he states that diversification has enabled him and his partner to be very selective. Because they are investing their own funds into every deal and because they intend to hold properties for years or decades, they make sure that the fundamentals are in place.


Asking the Right Questions

While Matt Shamus and his partner actively rely on the support teams that they assemble, they do not rely solely on a single answer to their questions. Whether they are vetting a market, a team, or a specific property, they always do their due diligence. Through their diverse range of experiences, they know which questions to ask. They often ask multiple sources to provide answers so that they can develop a well-rounded concept of where the answer actually sits. Adding onto this point, Shamus emphasizes the fact that he needs to feel confident in his team as well as in his partner. In fact, he believes that having a solid, trustworthy partner is the foundation of his success.


Learning from Mistakes

Upon reflecting on past mistakes, Shamus described a nightmarish plumbing issue that he attributed to a lack of due diligence and a lack of understanding. At the time, he said that cast iron pipe was increasingly being used in residential projects. One of his first few residential investments used this type of pipe as well, and Shamus seemingly went along with the flow. He closed on the deal without getting a plumbing inspection. Within a few weeks after closing, however, the tenant contacted him to say that sewage water was backing up into the house. This issue may have been avoided if Shamus had simply spent more time understanding the situation and researching the condition of the property.


Looking Ahead

Notably, Matt Shamus is most proud of his current development deal. He had the foresight to identify a solid investing opportunity upfront. Because of his extensive experience with commercial investments, he and his partner have taken time to study and research the best use of the property. They still have not determined what that use will be. However, because the property was undervalued and has extensive potential, Shamus is confident that this will be a lucrative deal.


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5 Bad Habits That Are Costing You Money When Investing

5 Bad Habits That Are Costing You Money When Investing

If you want to know how to save money, it’s also important that you understand how not to save money. While you can follow top investing tips, read blogs, and listen to industry-leading podcasts, it won’t help you hit your investment and savings goals if your bad habits are costing you money.

The difficult part is that, oftentimes, we don’t even know when we have these bad habits, let alone how we can break them. Whether you follow the stock market, invest in real estate, buy mutual funds, or you’re trying to build a more robust savings account, bad habits can harm your finances in the long run.

Whether you struggle with financial temptation or rely on credit cards a little too much, here are a few bad financial habits that can cost you money when you’re investing.

1. You spend more than you earn.

It’s a poorly kept secret that credit cards and credit lines often lead to vicious cycles. It often goes like this: You start by spending a bit too much of your paycheck. Then, to navigate ongoing expenses and costs, you have to rely on your credit card. Unfortunately, this traps you into high-interest-rate debt. This can derail savings goals, eat up your paychecks, and cost you a lot of money over the years. So, if you’re ready to start investing, the best way to hit your financial goals is to stop spending more than you earn.

Often, this means you need to sit down and review your spending habits and how those align with your long-term goals. Start by looking at your spending over the last year and how much money you have in your bank account. In some cases, a great way to hit your savings goals and continue investing is to cut down on unnecessary expenses. These include retailer subscriptions (such as Amazon Prime or your gym membership), credit card debt, and discretionary spending. You can also set a tighter budget for your groceries, use more coupons, and look for discounts. It’s a great option that often equates to “free money” in a sense.

For some people, however, this may even mean that you need to earn more money. If you don’t have enough money to tackle your credit card debt, invest in a retirement plan, and consider index funds or individual stocks, you need to find ways to earn money. A simple way is to invest in a part-time job or a side hustle. This will impact the amount of money you make in the short term and help you grow your portfolio in the long term.

2. You’re not prepared for emergencies.

If you don’t have an emergency fund, it’s a good idea to set one up. Even if you have automatic savings and a robust retirement plan, there are plenty of ways that unexpected expenses can derail your savings account, short-term goals, and financial success. At a minimum, many financial advisors and experts recommend saving a few months’ worth of expenses to navigate job loss, medical bills, or other emergency expenses. Then, if you have to replace your water heater or pay unplanned utility expenses, you’ll be prepared.

While you don’t need to contribute to this account at regular intervals, you should always review it at regular intervals, determine when it needs more or less money, and take note of your account averages.

3. You’re missing out on tax breaks.

If you’re not using the right financial products for your taxable income, it might be time to hire a financial planner and review your past performance regularly. Often, your tax refund is the easiest way to find additional money each year. With an experienced financial advisor, you can find tax break opportunities and get a good deal on your tax return each year. This helps preserve your hard work during each fiscal year and helps you reap the rewards in the near future.

The government even offers tax-advantaged accounts that are great for someone looking to build a diversified portfolio. They offer IRA (individual retirement account) and 401(k) options. It’s a good idea to review your current retirement savings and taxable brokerage account to ensure that it’s helping you build wealth. If not, it won’t require a lot of time to correct, though this should be your top priority.

4. You tap into your retirement accounts too early.

The bottom line is that a little bit of greed now can cause you a lot of grief in the next year. A sound piece of financial advice: Don’t pull from your retirement savings accounts unless you absolutely have to. You shouldn’t treat a retirement account like a payday advance opportunity. Even if you’re using that money to purchase financial products or look into the real estate marketplace or stock market investing, you’ll still face higher interest rate penalties. You also miss out on those financial growth opportunities.

The first thing you need to keep in mind about these accounts is that you should leave your money invested at all costs. Unless you have no other options for securing funds, this route carries too much volatility, and it can take you a long time to rebuild. If you’re facing true financial hardship over the course of a year, you may want to reach out to a professional in the financial world to discuss early withdrawal options.

5. You’re impatient with diversification.

An easy way to cost yourself money while investing is to get impatient. While nobody has a great time watching a low-cost index fund or a Roth IRA underperform, you need to focus on the essentials and your portfolio’s overall goals. The downside is that it’s understandably difficult to stay the course, but you must do your due diligence and avoid tinkering with your portfolio in a reactionary way.

Next Steps

If you’re ready to learn more about how to manage your finances while you’re investing, the first step is to join the Goodegg Investor’s Club. With helpful insights on anything involving U.S. investing, from equity to ETFs, the Goodegg team can help you ditch your bad financial habits and invest in financial products that can help you hit your goals.



About the Author:

Annie Dickerson and her partner Julie Lam are founders of Goodegg Investments — an award-winning real estate private equity firm — and creators of the Real Estate Accelerator Mentorship Program. They are authors of the book Investing For Good and hosts of the popular Life & Money Show podcast:


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What Your Financial Advisor Doesn’t Want You to Know

Financial advisors have historically played an important role in the financial planning industry. In the United States alone, there are hundreds of thousands of financial planners and advisors, each with varying specializations, experience, and portfolio preferences.

Many people like to work with financial advisors because, at least on the surface, these individuals seem to know quite a bit about finance. They offer you advice, help you pick assets to invest in, and answer the many questions you might have.

Unfortunately, however, many financial advisors will recommend investments that are in their best interests rather than your best interests. They may even discourage you from investing in lucrative, sound investments such as private placements because investing in such vehicles would yield them zero commissions.

Understanding how your financial advisor gets paid can help you recognize any biases that may be at play. If you met your financial advisor through a life insurance agency, for example, there is no doubt that they will sway you into investing in life insurance. This is not to say that all life insurance policies are necessarily bad, rather, that the recommendation was simply made with a strong degree of self-interest.

These direct conflicts of interest can create problems for unknowing investors. Below, we’ll discuss some of the things financial advisors don’t want you to know and explain why lucrative private placement opportunities are often overlooked and avoided.


Follow the Money

In the world of finance, nothing is free. Even if someone is offering you free information or a free consultation, they are likely only doing so to potentially sell you a product or service someday in the future. If you are working with a financial advisor, be sure to ask them how they get paid.

If you aren’t inclined to ask, I’ll just tell you. Financial advisors get paid in many different ways. Some get paid hourly, others get paid by commission, and some even get paid for the specific products they sell. They still get paid, even if you don’t. Think about that. If someone’s livelihood depends on their ability to recommend one product over an alternative, it’s pretty easy to guess what they are most likely to recommend. If their interests aren’t aligned with yours, then self-interest creeps in.

We’re certainly not suggesting that traditional financial advisors are malicious in any way, however, when interests are not aligned, things tend to go awry. This misalignment of interests is an industry-wide problem and is not something that should readily be dismissed or overlooked.


Yours or Mine

It’s obvious that many financial advisors, particularly those that work for a specific company within some facet of the financial industry can be easily pressured to push specific financial products even when it’s not the best investment for you.

But what many people don’t realize is that there may also be active forces preventing them from making specific recommendations. For example, investment vehicles that are often kept out of sight and out of mind are private placements. These assets can offer extraordinary returns for you, so what’s the problem? The problem is financial advisors make no commissions if you invest in private placements, so where is their incentive to encourage you to invest in these types of investments?

In fact, many financial advisors will actively speak out against private placement investments without ever clearly stating why. They might say they prefer more traditional ways to access global equity markets or blame illiquidity, but those reasons alone are insufficient to dissuade you from investing in some of the most lucrative and consistent investments available.

What they aren’t telling you is the main reason they make their specific recommendations: it is good for them, personally.


Financial Illiteracy

When you ask a financial advisor, “Why do you recommend this specific investment?” they’ll probably say something about expected returns, or diversification, or various other factors that can make a prospective investment appealing.

All of these things may be true. After all, they are well-aware of the game that they need to meet your baseline expectations if they want to continue working as your advisor into the future. However, more times than not, financial advisors are financially illiterate. Let me explain.

They may know their products because it’s their job to know, and it’s how they get paid. But how many financial advisors are well-versed in real estate investing? Not REITs, but actually owning real estate directly. How many know about private equity, real estate syndications, cryptocurrencies, or running a business? Not many.

It is still okay to listen to your financial advisor and they probably have some decent advice. But, at the end of the day, take the advice with a grain of salt, because you now know that they have underlying self-interests. Know that you are ultimately the one who has control over your portfolio and will be responsible for the outcome of your investing decisions. You will always be free to move your capital elsewhere if your advisor prohibits you from exploring a particular asset class you are interested in. Take control, your future depends on it.

Here are some additional insights from actual financial experts.


Financial Advisors Fear Losing Control

Most financial advisors have worked hard to be where they are and, like anyone, they do not want to be made obsolete. However, you can find profitable investment opportunities on your own. You can make investments and generate sizable returns without the need to pay someone a commission every time you want to make a trade or move funds.

Financial advisors are often hesitant to make that clear – that is, that they fear the veil will be lifted and that their profit-generating services will no longer be needed. The clout they’ve worked hard to establish can easily go away. You can take control of your own future and do a good job at it.

These financial advisors may be experienced, but they don’t know anything you can’t learn (rather quickly) on your own. For instance, if you find a private placement, such as a real estate syndication, that on a risk-adjusted basis appears to be an incredible opportunity, educate yourself and take action. Invest as the ultra-wealthy have for decades.

While financial advisors are not going away any time soon, their roles will continue to change. Today, the consumer investor are the ones who rightly have the power to control their own destiny. If this means investing in private placements or other alternative wealth-building vehicles, now more than ever, you are empowered to do it.


About the Author

Seth Bradley is a real estate entrepreneur and expert at creating passive income while still working as a highly paid professional. He’s the managing partner of Law Capital Partners, a private equity firm focused on multifamily and opportunistic acquisitions, and the host of the Passive Income Attorney Podcast. Get started building a future full of freedom by snagging The Billables to Abundance Bible at

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Four Ways to Increase Cash Flow of Your Commercial Real Estate Investment

Anyone involved in commercial real estate is hoping to maximize the return on their investment. When trying to increase their potential returns, they often focus on the value of the properties they’re investing in. While buying properties with an upside (i.e., natural appreciation) is certainly important, it’s vital not to overlook another way your investments can bring returns: cash flow. When your properties are providing a monthly income, you’re receiving a regular reward for having made the investment.


Why Cash Flow Is So Important

A steady cash flow is essential in many cases because it supplies the investor with a regular income. This is especially important for investors who are just starting out and don’t have a lot of wealth to fall back on.

Take the example of a young couple who were hoping to parlay their real estate expertise into a profitable enterprise. In the early years of their venture, they needed to prioritize investments that could bring immediate cash flow. This is the only way they were going to get by.

A steady income can also help increase the value of the property itself. While the cash flow is undeniably useful to the investor, it is even more important as a way of increasing equity. Not only is the increase in equity likely to exceed the value of the income, but it will also remain untaxed as long as it remains unrealized.

While unrealized equity might not feel as good as cold hard cash in your pocket, it will still be part of your total wealth. Eventually, the equity you gain through your income will become big enough that you can use it for further investments, which will in turn provide other income streams. This means the modest cash flow you started out with will allow you to create an income-equity-investment cycle that should prove highly profitable down the road.

In order to maximize the return on an investment, you want the cash flow to be as high as possible. There are many ways to boost the income from a property, all of which depend on adding value to the property itself. A sound value-add investment strategy will improve the property in ways that directly increase cash flow. Here are four ways you can create additional value for a property.


Find Off-Market Deals

Before you can successfully add value to a property, you need to find properties that present opportunities for improvement. One of the best ways to do this is by working off the market. While you might find some great options listed on the MLS, LoopNet, or from a commercial real estate broker, you should never limit yourself to what is officially for sale. Some of the best commercial real estate opportunities will only show their faces if you go actively looking for them.

Finding off-market opportunities is a lot of work, which is why not all investors take the time to do it. Worthwhile discoveries only come after months of marketing efforts, like cold calling and direct mail campaigns. Eventually, however, all that work will pay off, and you’ll find yourself with a property that could undergo serious improvements. Once you’ve increased the property’s value, you’ll see the cash flow steadily improve.


Get Creative In Negotiations

Sometimes, you can increase the value of a property before closing. The way to do this is by artfully negotiating with the seller. With the right negotiation tactics, you can add conditions to the purchase that will increase your cash flow down the line.

Imagine, for example, that you are hoping to buy a mobile home park that is not making efficient use of its space. You could insist that the sellers build additional units as a condition for the purchase. If the current owners are truly interested in a sale, they might be willing to negotiate a deal. You can buy the property once the additional units have been completed, and then you’ll have the ability to house more tenants on the property. This, in turn, will increase the property’s cash flow.

Creativity in negotiations will also make it easier to land promising off-market deals. Try to stay as flexible as possible when dealing with intransigent sellers. By making multiple offers, each of which contains different financing options, you make it more likely you’ll secure a deal. Once you’ve got the deal in place, you can start making plans to add value and increase revenue streams.


Improve Property Management

A well-managed property will always outperform a similar investment that’s not properly run. As an investor, you should seek out properties that aren’t living up to their potential. Once you’ve secured the purchase, you’ll be able to implement your own management style that should bring a greater steam of income.

Not all investors know how to make wise decisions regarding their properties. Many indulge in cost-cutting measures that ultimately detract from a property’s profitability. As the new owner, you’ll have the ability to run the business as you see fit. By looking for potential improvements, running a series of cost-benefit analyses, and implementing meaningful changes, you can increase the cash flow that a property produces.


Invest in Infrastructure

Infrastructure is one area where better management can make a major difference. Improving a property’s physical components will increase demand among potential tenants. This, in turn, will allow you to fill more units and increase monthly rents. When you have more tenants, each of whom is paying more than before, your property will produce a much more significant income.

Take the example of a self-storage facility in Texas. In an effort to save money, the original owners used massive fans on the third level instead of installing a typical climate control system. As a result, one-third of the facility was unbearably hot during the summer months. Unsurprisingly, this made it difficult to rent the units in this part of the building. Upon buying the property, new owners ripped out the fans and installed regular air conditioning, and the demand for the units increased dramatically. By spending big on significant improvements, the buyers were able to make the property much more valuable while increasing the monthly cash flow. Soon enough, the infrastructure improvements had paid for themselves.


Conclusion: Value And Cash Flow Go Hand-in-Hand

Any investor wants their commercial properties to accrue value and bring in cash. Luckily, these two goals are far from mutually exclusive. In fact, they supplement each other, allowing you to pursue them both simultaneously. By developing and implementing a value-add investment strategy, you’ll increase the cash flow from tenants. Over the years, you’ll earn a significant income from your property, increase the associated equity, and grow your overall wealth. What more could an investor ask for?


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Commercial Real Estate Lending: What is the Ideal Multifamily Loan?

Do you know what the greatest ongoing expense is for real estate investors?

Assuming debt was secured to acquire the asset, the great expense is the ongoing debt service.

Since the debt service is not included in the net operating income calculation, it do not impact the value of the investment. However, it does impact the cash flow, which in effect impacts the returns to passive investors.

Therefore, being the greatest expense and impacting the return to passive investors, securing the best loan is of the utmost importance.

The purpose of this blog post is to help active apartment syndicators and passive apartment investors alike to understand how to know what the most ideal commercial real estate loan for a particular multifamily investment is. To accomplish this task, this blog post will outline the following:

  • What lender should be use?
  • Should an agency approved lender always be used?
  • Should a mortgage broker or a lender be used?
  • When is the best time to engage with the lender/mortgage broker?
  • What are the qualifications of the borrower, deal, and market?
  • What are the upfront reserve requirements?
  • Are renovation costs included in multifamily loans?
  • What should be looked at when comparing multifamily loan options?

What lender should be used?

The ideal multifamily loan is an agency loan for most apartment syndications. The main exception is if the business plan includes an early exit – via a refinance or a sale. When this is the case, a non-agency bridge loan is ideal because a borrower won’t be required to pay a prepayment penalty (more on this in a later section) at sale or refinance?

When pursuing an agency loan, what lender should be used?

With an agency loan, a lender provides a borrower with debt to purchase an apartment. Rather than holding the mortgage loan on their books, the lender sells the mortgage to an agency. Hence, an agency loan.

The agency pools together thousands of mortgages, which are sold to private investors and investment firms on the open market as mortgage-backed securities (MBS).

The two agencies that purchase and resell mortgages as MBSs are Fannie Mae and Freddie Mac.

Both agencies guarantee the MBSs. Since Fannie Mae and Freddie Mac are government-sponsored entities (GSEs), the MBS are implicitly backed by the Unite States government. Therefore, in order to provide a guarantee, the agencies only buy certain types of mortgage from approved providers.

Fannie Mae was created first. Later, Freddie Mac was created to generate competition in order to drive down interest rates and fees for both the borrowers, the lenders, and the MBS investors.

Since Fannie Mae and Freddie Mac are buyers of mortgages, they do not work directly with borrowers. Therefore, to obtain an agency loan, a borrower must work with an approved lending institution.

Fannie Mae only buys loans originated from Delegated Underwriting and Servicing (DUS lenders). As the name implies, Fannie Mae delegates the underwriting and servicing of the loans underlying their MBS products to third-party institutions that meet their strict qualifications. Therefore, in order to obtain a Fannie Mae loan, a borrower must work with a DUS lender. Fannie Mae has a list of approved lending institutions on their website, which you can view here. Currently, 25 lending institutions qualify for DUS status.

Freddie Mac also has approved lenders called Optigo conventional lenders. The list of Optigo lenders is similar to the list of DUS lenders. You can view Freddie Mac’s list of approved lenders here.

Should an agency approved lender always be used?

One of the major benefits of an agency loan are the terms. Agency loans generally result in lower down payments and/or lower interest rates. Consequently, debt service payments are lower compared to non-agency loans, which means a higher cash-on-cash return.

However, as I mentioned above, the deal and the borrower (and their team) must meet the agencies strict qualifications.

So, yes, a borrower should always use an agency approved lender, assuming they and the deal qualify, and they projected hold period is longer than the prepayment period. If the borrower and/or the deal do not meet their criteria, or the plan is to exit the loan after a few years or less, the borrower may still be able to use an agency approved lender since most offer more than just agency loans. However, they will not qualify for the best rates and terms.

Should a mortgage broker or a lender buy used?

There is an exception when it comes to securing agency loans. Borrowers can secure an agency loan without working directly with an approved institution by working with a mortgage broker.

A mortgage broker acts as an intermediary between lending institutions and borrowers.

There are countless different multifamily loan programs offered at any given time. Rather than finding the best loan on their own, borrower relies on the expertise of a mortgage broker or lender. The borrower submits information about the deal and the mortgage broker or lenders returns the best loan program option/s.

A mortgage broker is not limited to loan programs offered by a single lending institution. They have a network of many lending institutions, which means they can find the lending institution that offers the best terms for that particular loan program. When a borrower works directly with a lending institution, their options are more limited.

Since the mortgage broker is an intermediary, however, they charge a fee for their services.

So, who should be use? I think it makes sense to work with a mortgage broker. Sure, the expense to secure the loan is higher. But since they have relationships with multiple lending institutions, they will likely underwrite a loan with better terms that offsets the broker’s fee.

When is the best time to engage with a mortgage broker/lender?

A borrower should already have engaged a lender or mortgage broker prior to looking for deals. Based on their and their teams background, the lender or mortgage broker will let them know which loan programs and how much debt they qualify for.

With this information, the borrower will know which type and sized deals to pursue.

Then, when the borrower is interested in submitting an offer an a specific deal, the mortgage broker or lender can quickly provide a quote (since all they need to do is fully underwrite the deal as opposed to fully underwriting the deal and the borrower). The borrower will have an idea of the down payment and debt service so that they can submit a more accurate offer.

When a borrower doesn’t engage a mortgage broker or lender before looking for deals, they may over-estimate the type and size of deal for which they qualify. They may submit an offer, get a deal under contract, and get forced to cancel the contract because they cannot qualify for financing (or the financing results in a higher than expect debt service). As a result, the borrower’s reputation is tainted in the eyes of the seller, listing commercial real estate broker, their property management company, and their passive investors (depending on how far into due diligence the deals was when the contract was cancelled).

To avoid these issues, the borrower should engage the mortgage broker or lender for even looking at deals.

What are the qualifications of the borrower, deals, and market?

Both the borrower and the deal must meet specified criteria in order to qualify for Fannie Mae and Freddie Mac debt.

The borrower includes the guarantor, key principals, and principals.

  • The guarantor is who guarantees the loan.
  • The key principals are any person who controls and/or manages the partnership or the property, is critical to the successful operation and management of the partnership or the property, and who may be required to provide a guaranty.
  • The principals are any person who owns or controls specified interests in the partnership. When the partnership is an LLC, a principal is anyone who owns 25% or more membership interest (this includes passive investors too).

Agency lenders will analyze the borrower based on the organization (i.e., entity) structure, multifamily and business experience and qualifications, general credit history, and current and prospective financial strength. What is considered passing criteria is based on the size, complexity, structure, and risk of the deal.

  • Organizational Structure: For most agency loans, only single purpose entities are eligible borrowers. This means you will need to create a new entity for each transaction. The exemptions are the small balance agency loans in which individuals and non-single asset entities are eligible borrowers.
  • Multifamily and business experience and qualification: Fannie Mae and Freddie Mac have different ways to qualify the borrower based on experience. Fannie Mae uses a service called application experience check (ACheck). ACheck checks the borrowers experience with Fannie Mae loans in the past. Generally, a member of the borrower must have been a member of the borrower on a previous Fannie Mae loan to “pass”.

Freddie Mac provides more specifics on how they qualify borrowers. The borrower must have a minimum of three years’ experience in the same capacity that it will have for the proposed transaction, and acquired, developed, or owned a minimum of three properties. Also, the borrower must own and manages other properties in the market where the subject property is located. If the borrower is lacking in one or more of these areas, Freddie Mac may require a higher replacement reserve deposit.

  • General credit check: The lender will conduct a general credit check on the borrower, checking for other loans and liabilities to determine their ability to fulfill the debt obligations based on the current and past debt obligations.
  • Current and prospective financial strength: The agencies do not have specific liquidity and net worth requirements for the borrower on their conventional loan programs, which means it will vary from deal-to-deal. They may require more upfront reserves if the borrower has weak finances.

We can get an idea of what the agencies require regarding liquidity and net worth by looking at the stated requirements for their small loan programs.

For Fannie Mae’s small loan ($750,000 and $6,000,000) and Freddie Mac’s small balance loan ($1 million to $7.5 million) programs, a minimum liquidity of 9 months principal and interest and a new worth equal to the loan amount is required.

Assuming the borrower qualifies for agency debt, the next check is the deal.

To qualify the deal, the lender will analyze the property, the occupancy, the property management company, and the market.

  • Property: The agencies only provide financing on certain types of properties. However, most multifamily properties you look at will meet their requirements. The requirements are standard characteristics like five or more units, accessible by road, the units have bathrooms and kitchens, water and sewer service, up to code, access to emergency services, etc.
  • Occupancy: The major factor that determines if a deal qualifies for agency debt is the occupancy.

Fannie Mae’s conventional loan program requires a minimum physical occupancy of 85% and a minimum economic occupancy of 70% for 90 days. The occupancy requirements are even higher at 90% for their small loan program.

Freddie Mac’s conventional and small balance loans require a minimum physical occupancy of 90% for 90 days.

  • Property management company: The property management company who will manage the deal post-closing will also be analyzed by the lender. The agencies do not have restrictions on the type of management company, which means it can be in-house or third party. However, the property management company must have adequate experience to ensure effective administration, leasing, marketing, and maintenance, and is staffed appropriately for the type and size of the property and the services provided.
  • Market: The agency will also analyze the strengths and weaknesses of the market in which the deal is located. They characterize strong markets as having low vacancy, minimal rental concessions, stable or increasing tenant demand, good balance of housing supply and demand, stable economic base, and employment diversification.

Also, certain loan terms will vary based on the market. For example, Freddie Mac has different minimum DSCR and maximum LTVs for top markets, standard markets, small markets, and very small markets.

What are the upfront service requirements?

The agencies have increased their reserve requirements in responses to the coronavirus pandemic.

Fannie Mae is currently requiring 12 months of principal and interest for loans of $6 million and more, and 18 months for loans of less than $6 million. However, if the debt-service coverage ratio (DSCR) is 1.35 or higher and the loan-to-value (LTV) is 65% or lower, Fannie Mae only requires six months of principal and interest. If the DSCR is at least 1.55 and the LTV is 55% or less, no reserves are required.

Freddie Mac is currently requiring nine months of principal and interest on loan with DSCR less than 1.40, six months on loans with DSCR 1.40 or higher, and 12 months on small balance loans.

Are renovation costs included?

Both Fannie Mae and Freddie Mac offer loan programs which cover the costs of renovations.

Fannie Mae offers a DUS moderate rehabilitation supplemental loan (mod rehab). This is a supplemental loan that can be secured in addition to the conventional DUS loan to cover renovation costs. Unlike standard supplemental loans, the mod rehab loan doesn’t have a one-year waiting period. The main requirements for the mod rehab loan is that Fannie Mae must be the only debt holder on the property and minimum renovation costs of at least $10,000.

Freddie Mac offers two renovation loans – moderate rehab loan and value-add loan. The main different are the renovation costs requirements. For the value-add loan, renovations must be between $10,000 and $25,000 per unit. For the moderate rehab loan, the renovations must be between $25,000 and $60,000 per unit with a minimum of $7,500 per unit designated for interior work.

Therefore, if renovations are less than $10,000 per unit or greater than $60,000 per unit, a borrower will have to cover 100% of the renovation costs with passive investor capital or secure a bridge loan through a mortgage broker.

What should be looked at when comparing multifamily loan options?

Here is a list of factors to be aware of when you are analyzing loan options.

Debt service is the payment owed to the lender each month. The lower the debt service, the greater the cash flow. However, the loan option with the lowest debt services isn’t automatically the best option. The debt service may start low and gradually increase if the interest rate isn’t fixed. The debt service may be low but the closing fees are too high, or the loan may not be assumable, the prepayment penalties may be high, etc. Therefore, the other factors which are outline below must be taken into account in addition to the debt service.

Loan amount is the total amount of money a borrower will receive from the lender. The different between the loan amount and the total project costs is the amount of equity a borrower will need to raise.

Loan term is the number of months until the loan must be repaid in full. On shorter-term loans, a borrower may have the option to purchase one or multiple loan term extensions. Ideally, the total possible loan term is at 2x the projected business plan. For example, for a value-add business plan with a renovation timeline of 24 months, the maximum loan term should be four years. That way, a borrower isn’t forced to sell or refinance. However, the longer the loan term, the higher the interest rate, so the longest term isn’t necessarily the best term.

Amortization is the time period the principal and interest payments are spread over. The greater the amortization, the lower the debt service. Usually, the interest payments aren’t spread out evenly during the amortization period. Instead, the first payments are mostly interest (so the lender makes their money upfront) and the interest gradually reduces over time.

Interest-only period is the number of months of interest-only payments. At the end of the interest-only period, principal and interest payments are due.

The main benefit of interest-only periods is the increase in cash flow, resulting in a higher internal rate of return (IRR) since money is returned sooner. This increase in cash flow is even more beneficial on value-add deals because cash flow is generated from day one before the increase in revenue is realized from the renovations.

However, there are a few potential drawbacks. Firstly, there is no principal paydown, which impacts future supplemental loan or refinance proceeds. Secondly, once the interest-only period expires, the debt service increases, which reduces cash flow. Lastly, a borrower may convince themselves to do a bad deal because of the lowered debt service during the interest-only period.

Debt-service coverage ratio (DSCR) is a ratio of net operating income to debt service.

This is one of the factors the lender will use to calculate the maximum loan amount.

Loan-to-value (LTV) is the ratio of the loan amount to the appraised value of the apartment community. All lenders will provide financing up to a maximum percentage of the appraised value.   

The higher the LTV, the more leveraged the deal. This is beneficial because of the lower down payment but is also riskier since a borrower has less equity in the deal as a protective cushion against market fluctuations. Therefore, don’t secure a loan with an LTV that is greater than 85%.

Interest rate is the rate the lender charges a borrower to borrow their money. The interest rate is either fixed, meaning it will remain unchanged during the loan term, or is floating, which means it fluctuates up and down during the loan term. Generally, the initial interest rate is lower when floating. But it doesn’t mean it will remain lower.

If the interest rate is floating, a borrower will want to know what the rate is tied to, which is referred to as the index. Then, they can see how the index is trending to determine if your interest rate will go up or down during the hold period (to the best of their knowledge, of course)

If the interest rate is floating, a borrower may also want to consider purchasing an interest rate cap. For an upfront fee, they can place a ceiling on how high the interest rate can rise. This is always ideal since it is impossible to predict whether interest rates will rise or fall during the hold period.

Whether the interest rate is fixed or floating, a borrower will also want to know when the rate is locked in. If interest rates are raising, they want to rate to lock as quickly as possible. Sometimes, a borrower has the option to expedite the rate lock period for a fee.

Click here to learn more about fixed rate vs. floating rate interest rates.

Recourse determines if the guarantor is personally liable for the loan. If the loan is recourse, the guarantor is personally liable. If the loan is non-recourse, the guarantor is not personally liable.

If the loan is non-recourse, a borrower will want to determine what the exemptions are that converts the loan to recourse, which are typically fraud, misrepresentation, and gross negligence.

Tax and insurance escrows: a borrower may be required to submit monthly deposits into a tax and insurance escrow account, even if taxes and insurance payments are due quarterly or annually. If monthly escrow deposits aren’t required, they may need to raise extra money upfront to cover lumpsum tax/insurance payments, depending on how quickly each is due after closing

Lender reserves is the amount of money the lender requires each month to be deposited in a reserves account. Usually, lenders require between $200 and $300 per unit per year.

Besides the deposit amount required, a borrower also wants to know when they stop making deposits and when they can pull the money out if it isn’t used.

For agency loans, expect to continue to make the payments until payoff the loan. Also, don’t expect to be able to access the funds until payoff of the loan either. For non-agency loans, the lender reserves are usually negotiable.

Prepayment penalties is a fee incurred if a borrower pays back the full or a certain percentage of the loan amount before a specified date.

The prepayment penalties are important if they expect to refinance or sell before the prepayment period expires. If this is the case, they will need to include the prepayment expense into your sales disposition calculations.

Click here to learn more about prepayment penalties.

Assumable: if the loan is assumable, when you are ready to sell the deal, a prospective buyer has the option to either secure new debt at new terms or assume the existing debt at the existing terms. This is attractive to buyers if the existing terms are better than the new terms currently available.

Typically, there is a fee incurred to the buyer who assumes the loan.

Supplemental loans: these are secondary loans taken out on top of the existing mortgage. If a borrower is allowed to secure a supplemental loan, they will want to know how many they can secure and when they can be secured. Generally, they are able to secure a supplemental loan one year after the origination of the first loan.

Click here to learn more about supplemental loans.

Require reports: the lender will order reports to be conducted on the property. These generally include an appraisal, property condition assessment, and phase I environmental, at minimum. A borrower will want to know which reports are required, when they are due, and the costs associated with each.

Click here to learn more about the different due diligence reports.

Financing fees: these are the fees charged by the lender (or mortgage broker) to put together a loan. Common fees are applications fees, processing fees, origination fees, good faith deposits, and interest rate lock fees.

Want to learn more about commercial real estate lending and multifamily financing?

Click here to download a FREE document with more detailed information on the different types of agency loans, bridge loans, and multifamily financing options,

Also, click here for more blog posts on apartment financing and lending.


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What to Include in Real Estate Business Team Interviews

As a real estate investor with an eye on owning apartment communities, you need two things in your arsenal to maximize the returns on your investments. One, you need a solid understanding of how to identify potentially lucrative deals and how to execute them. And two, you need to surround yourself with a winning team of professionals who will support you each step of the way.

So, who exactly do you need to hire to be on your real estate investment team? And how do you know which candidates are truly the best ones to work with as you strive to succeed in apartment syndication?

Here’s a rundown on what to include in real estate business team member interviews as you try to establish an all-star investment team.

How to Choose a Mentor for Your Real Estate Investment Team

A mentor is a core investment team member, meaning that he or she is one of the most critical experts to have on your side before you embark on any deal. An important question to ask a potential mentor is if he or she owns properties, and what the mentor’s net worth is. This can demonstrate his or her success in the biz and prove their experience and expertise. Also, will the mentor want to take part in your real estate deals, or will he or she simply advise you? Establishing the nuances of the relationship right away will make things easier in the future. Finally, make sure that your potential mentor shares your business values and understands your goals.

How to Choose a Property Management Company for Your Real Estate Investment Team

A property manager is yet another core investment team member you’ll need to hire to effectively manage and scale your business. When interviewing real estate managers, be sure to ask them how many rental units they currently manage. Ideally, you want a manager with anywhere from 200 to 600 rentals, as too few units indicates that the company may not have much experience, whereas too many rentals mean you may become a number. Be sure to also ask about the company’s management fees, and choose one whose fees are based only on collected rents, as this will motivate it to constantly fill vacancies.

How to Choose a Real Estate Broker for Your Real Estate Investment Team

Your real estate broker will also play an important role in your investment team, as he or she will help you to buy or sell properties when the time is right. Make sure that you ask potential brokers how much they charge and why they stand out from their competitors. For instance, if you’re big on communication, you may want to go with a broker who prides himself or herself on constantly being available by email or phone. In addition, consider asking brokers if they offer any guarantees, which means they’ll stand behind the service they give you.

How to Choose a Real Estate Attorney for Your Real Estate Investment Team

A real estate attorney may not necessarily be on your core investment team, but he or she is a secondary team member who still plays a valuable role in your real estate investing efforts. A wise question to ask an attorney is what he or she recently did during a transaction that did not occur as planned. In addition, you may want to find out if he or she can recall a time when his or her efforts had a positive impact on the outcome.

How to Choose a Mortgage Broker for Your Real Estate Investment Team

You may also choose to include a mortgage broker as a secondary investment team member. Before you hire a given broker, consider whether other fees exist beyond points and interest. Also, what is the funding timeline? In other words, how quickly can your loan be turned around? Make sure that the mortgage broker you hire also has experience with funding the kinds of real estate projects you are pursuing.

How to Choose an Accountant for Your Real Estate Investment Team

As you seek to build the ultimate team, note that you’ll additionally need to work with an accountant. This individual will make sure that, in all of your revenue generation activities, you don’t end up getting into trouble with Uncle Sam by not paying your taxes or not paying enough taxes based on your earnings.

Ask potential accountants what types of companies they’ve worked with, and check to see how many years of experience they possess. It may also behoove you to ask them if they are Certified Public Accountants (CPAs) or if they have other qualifications. Note that no CPA designation is necessary to fulfill the responsibilities of a real estate accountant.

Another thing to consider when interviewing accountants is if they own any real estate properties of their own. Or, how many of their clients own rental properties that produce income? If they are also real estate investors or at least work regularly with real estate investing clients, they’ll have a better idea of how to help you manage the financial aspect of your own real estate business.

Start Interviewing Experts and Hiring Winning Professionals

No real estate deal is successfully executed in a vacuum. In other words, if you expect to make lucrative deals happen, you’ll have to rely on other people—like a mentor—to pursue, execute, and generate money from these deals.

I could be the mentor you need to get your real estate business off the ground and start experiencing serious gains as an investor. I’ll show you how to successfully fill all of the other openings you have on your investment team as well. In fact, you can check out my three-step approach to hiring brand-new real estate team members with ease.

Contact me today to further discover how to add competent experts to your real estate investment team time and time again.

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How and Why to Diversify Your Real Estate Investment Portfolio

On the day you purchased your first piece of real estate, you swore to yourself that it would be a day you’d never forget. But then another property came along. And another one. And yet another one. Now, you truly have a robust real estate portfolio at your fingertips, and you couldn’t be prouder.

The question is, are you making the right moves to protect your investments? How sure are you that your real estate investment portfolio will remain intact for years to come, no matter what economic or real estate market changes may come your way?

While there’s no crystal ball that will definitely tell you the future of real estate in the months or years ahead, diversifying your real estate portfolio can increase your chances of staying afloat financially, no matter what the future holds. Here’s a rundown on why and how to diversify your investment portfolio today.

Why Diversify Your Real Estate Investment Portfolio?

Real estate portfolio diversification is where your portfolio’s investments vary in amounts that are relatively equal. Unfortunately, many new investors make the mistake of overlooking the need to diversify their real estate investment portfolios. And this is far from being a minor mistake.

Here’s why.

Remember the Great Recession of 2008, when the United States’ housing market experienced a major collapse? Sadly, many homeowners ended up losing their homes. Also, many homes’ average value decreased drastically. However, your average homeowner wasn’t the only one who suffered.

Real estate investors whose prime focus was to rent out residential homes also suffered a huge blow. In fact, they likely ended up losing their businesses. However, real estate investors who obtained income from sources outside of residential properties had a greater chance of surviving the 2008 collapse.

Let’s take a look at how you can go about diversifying your real estate investment portfolio.

How to Diversify Your Investment Portfolio Tip 1: Invest in Different Areas

Each section of the United States features distinct characteristics that affect the real estate market. Therefore, if you invest in various regions of the country, it’ll be harder for sudden shifts in different geographic parts to detrimentally harm your investment business.

The reality is, the next real estate bubble could easily happen within a decade or so, based on historical trends. Of course, various factors might contain the next bubble to a certain region, delay it, or soften its blow. Nonetheless, a bubble will happen again at some point.

Therefore, it only makes sense to try to buy and hold properties in several markets when building your real estate investment portfolio.

Where to Look

If you’re looking for the top cities for apartment real estate deals, for example, note that many areas in the country’s interior have been promoted as the best for investors to focus on. This is because, in such cities, price cycles tend to be less extreme, and they also don’t happen as often.

Still, cities on the country’s exterior can also be great markets for real estate investors, if they offer strong job and population growth potential. Also, look for cities where civic groups and government officials are forward-thinking in their planning and development, as appreciation opportunities are likely to exist in these areas.


Note that, if you do diversify your real estate investment portfolio by investing in different markets, ensuring appropriate property management can quickly become complex. For this reason, it is critical that you look at all of your property management options in various cities prior to deciding to pursue property investments in these cities.

How to Diversify Your Investment Portfolio Tip 2: Invest in Different Types of Properties

In addition to targeting different markets for your real estate investment portfolio, consider buying different types of properties, too. Single-family homes are certainly an excellent way to invest because they don’t present many hurdles for investors, especially for beginning investors. However, if you are focusing on single-family residences, be sure to purchase homes across many price points.

In addition, try to buy apartment communities, commercial properties, and even industrial properties as well. In this way, losses in a certain property category won’t necessarily cause you to lose your business.

Apartment communities, in particular, offer many benefits to investors. For instance, because you own so many units with an apartment deal, you won’t be affected by a single vacancy like you would be with a residential investment property. These properties also offer the benefit of being scalable and generating significant cash flow. The cash flow opportunities that come with these types of properties make them especially valuable for those looking to generate passive income.

Commercial properties are also known for producing strong cash flow. You’ll also face less competition with shopping centers and office buildings than you would with residential properties due to the more complex nature of commercial property investments.

The good news is that many cities where returns are strong for homes also offer great returns for nonresidential properties.

How to Diversify Your Investment Portfolio Tip 3: Make a Variety of Business Connections

Conduct business with various developers and investors. This is a wise move because various experts might specialize in specific property types or markets. The more connections you have in the industry, the more likely you are to make smart investment choices that will lead to a strong, diverse portfolio.

Start Diversifying Your Real Estate Investment Portfolio Today!

Now is an ideal time to begin working on making your real estate investment portfolio more diverse. The great news is that you don’t have to go about managing your real estate investment portfolio on your own. Also, you can make your life easier by becoming a passive real estate investor.

Become a passive investor and master the art and science of diversifying your investment portfolio. Get in touch with me today to learn more about how to shield yourself against future economic downturns and grow your profits with the right real estate diversification strategy today.

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Joe Fairless