Diversification: The Key to Successful Real Estate Investing

Let's talk about diversification and how it can help you succeed. But let me first point out a few observations I have about my field, which is multifamily syndication.

People have asked me time and again about the key to becoming a successful multifamily syndicator. I tell them honestly that hard work and focus provided the right conditions for success.

It is also crucial to apply the right strategies in the middle of an uncertain market. One thing’s for sure, people can use diversification as an effective tool for greater leverage regardless of how the market is performing.

Because of this, I have closed 26 multifamily syndications so far. For this reason, I get a lot of admiration from a lot of my fellow real estate professionals and from other people and my students as well.

Not always a walk in the park

However, it’s important to know that I have had my fill of failures. In fact, I lost a great deal of money when I was closing deals for single-family homes. If my memory serves me right, I lost a total of $700,000 or more in that sector. It was during the economic downturn of 2008 where people began losing money everywhere. I was able to raise a great deal of revenue when I first started in the multifamily sector, but I also lost some money along the way.

These experiences have taught me one valuable lesson in real estate investing. I learned that you can’t always count all your eggs and expect each one to hatch. Real estate is unpredictable without a doubt! Trends can change drastically, making it even more difficult for investors and sponsors to respond effectively.

To my mind, it’s not about adapting. When you're adapting, you wait for things to happen first. On the other hand, if you anticipate changes and look at the market more broadly, you can actually come up with a better plan that saves you time and money.

It’s for this reason that I became more interested in keeping my investment portfolio secured. People would also think the same way. They use diversification to secure their cash flow and protect their capital gains.

Diversification at work

Investing in stocks, mutual funds, and other financial products all at the same time is without a doubt a great strategy to consider. With a diverse investment portfolio, you are provided ample space for growth, and the same can be said when you invest in multifamily properties.

Indeed, the risk of investing in multifamily assets diminishes as you spread your investments across emerging markets. In my experience, it’s important not to focus on only one location. If you want to ensure consistent cash flow, you need to find spread your investments evenly across a diverse range of markets.

For this, you need to reach out to brokers and property managers and community officials. They can help you come up with a list of places with healthy job growth and an even healthier median home price. Market data research and finding why the job market is improving in that path of progress is essential.

Once you have determined the emerging markets to consider, it’s only a matter of pooling funds from your preexisting and relationship developed investors. It’s possible to generate enough capital to purchase assets in these markets. You can have your investors divert their retirement funds to their self-directed IRAs and even equity funds. This will enable you to gather enough resources to get you started.

Through diversification, you can improve your financial security and still grow wealth even if the market isn’t doing so well.