Choosing the Right Asset Class

[Randy Smith]

Asset class selection is one of the first decisions you should make when deciding to start investing passively in real estate. There is a tremendous number of options to choose from that can make it a little overwhelming, so I’ll walk through some items you’ll want to consider before choosing which asset class is right for you.

Familiarity

Picking an asset class that you have personal experience with can be a great choice. Many people pick apartments or single-family homes because they have personally lived in these types of assets. Others might have experience working in office complexes, industrial facilities, or even commercial strips malls. Bottom line: familiarity helps to build confidence when making such an important decision.

Capital Requirements

Investors should have a clear picture of how much capital they have available to invest today and how much they’ll have in the future. Investment strategies will vary significantly from someone with little to no cash compared to someone that has hundreds or even millions of dollars to invest. You can start investing in real estate with any amount of money (yes, even $0), but the amount you have access to will help to guide your asset class selection process.

Scalability

Consider looking at your long-term goals when choosing an asset class for investment. While you can scale with any type of investment strategy, certain asset classes make it easier than others to grow quickly. It’s not uncommon to see the single-family investor that shifts over to multifamily, self-storage or larger commercial investing because they want to scale quicker. If your long-term goal is to have a significant real estate investment portfolio, it will benefit you to consider the asset classes that allow you to grow much faster due to the systems that are required to run these types of investments.

Economic Influence

Certain asset classes do better when the economy is growing (fix and flips), and others do much better during recessionary times (self-storage, mobile home parks). Make sure you have a good idea of what is going on in the economy and which asset classes do well during the current economic season.

As you can see, there are many different factors to consider when choosing an asset class for investment. I could easily add 3-5 other factors to consider, but the four items above will help you get started. I’ll dig into each of the main asset classes on future blogs to help you continue to refine your search for the perfect first or subsequent investment.