1 - Diversification (Niche, Geographic and Sponsor)

[Jorge Abreu]

On my last post, I listed the 10 reasons why real estate syndication is a great passive investment vehicle. Today, I am going more in-depth on "Diversification" and will cover all the reasons subsequently.

1) Diversification

💥One of the biggest reasons investors diversify their real estate investment portfolio is to mitigate risk exposure. The phrase “don’t put all your eggs in one basket” applies directly to this concept, as spreading your investment across a broad spectrum is how investors balance risk and reward in their investment portfolio. What I love best about investing in real estate syndications is that it’s relatively easy to build a framework around diversification by niche, region and sponsor.

Niche Diversification - Many investors consider investing in real estate syndications in order to get better diversification within real estate asset classes Typically each sponsor has a specialty in a specific type of asset class that they have a competitive advantage in. One should be cognizant of diversification in your real estate portfolio, so spreading investments amongst apartments, self-storage, mobile home parks, single family residential, commercial and raw land development is a great way to achieve this. You can also diversify within an asset class itself. For Instance, In Multifamily you can invest in new build A Class type deals and also invest in heavy value add C Class deals. You must understand asset cycles and trends. Some areas like office may not do so well in a down economy where more stable assets like apartments, self-storage and mobile homes may hold up nicely.

Geographic Diversification - Another form of diversification within real estate syndication is geographically. Actively investing out of state can work, but passive investing through syndication deals is ideal for out-of-state investors looking for better value in top markets. Some of the best deals are out of state in growing markets. It can be very difficult trying to be an active out of state investor due to competition, relationships, market knowledge, etc., but if you align yourself with a reputable, successful operator in that local market you can gain access to some great deals you otherwise wouldn’t have had access to.

Sponsor Diversification - Vet sponsors carefully and don’t stay married to one sponsor forever. Ensure they are growing their depth with key management for continuity and that they are staying true to their philosophy and model, which should always remain conservative and tested. When you invest with multiple sponsors you gain a perspective that allows you to sniff out the good deals from the bad deals since you’ll see so much more deal flow.

👉 Next week's post will be on "Access To Large Investment Opportunities!" I hope you are enjoying the information!!