Most investors know that the best way to develop a secure investment portfolio is through diversified investments. Diversified investments provide your investment portfolio with a level of security that even the safest single investment can’t offer. Simply put, by diversifying your investments, you ensure that even if one potential investment fails, you have another source of income to back it up. Real estate crowdfunding is a great way to diversify your investment portfolio.
What is a Diversified Investment Portfolio?
Diversified investments also increase the odds that one of your investments will see more success than you initially anticipated, giving you that “windfall” that will take your portfolio to the next level. The question is, how do you start creating a diversified investment portfolio — particularly if you don’t have a lot of money to start with? There are three questions to consider:
- What level of risk you’re comfortable with?
- Are you willing to take a big risk for the possibility of a high return, or do you prefer to reduce the level of risk to ensure a steadier, if lower, income?
- Are you a risk-taker, or someone who prefers to play it safe?
How to Invest in Real Estate Crowdfunds
When you work with a company like Sharestates, you have the risk laid out in front of you from the beginning. While all of the properties chosen have a strong probability of success and are strictly underwritten, some of them are more likely to succeed than others. Each property is rated according to a variety of factors to determine how successful it is likely to be. In addition, you can see the anticipated return for each investment, so you know what the reward will be for success.
Look for investments within your comfort zone. It might be that you’re perfectly comfortable with “B” rated properties, but shy away from “C” or lower. If so, you’ll want to search for properties that are rated “B” and above. Remember, you don’t have to choose a single level for your investments. You might start with several properties at the “A” level, then add some from lower levels later on, as your comfort level with this type of investment improves.
Ideal Diversification Projects
Invest in strong, core urban markets. Ideally, you want properties located in markets that will absorb economic downturns better. You can’t depend completely on any specific local economy, but choosing properties from core urban areas will help provide you with the security you’re looking for. Spread your investments. It’s possible to get started with real estate crowdfunding with a relatively small initial investment.
While you can certainly put all of your initial investment into a single property, spreading your available money across several different investments will help you improve the diversity of your portfolio. The more properties you choose, the better the odds that you’ll see success on several different fronts. If one property does default along the way, it’s much less significant if it holds 5% of your investment funds than if you’ve placed 100% of your funds into that particular property. Keep in mind that a property that defaults still has value to the senior debt position —it’s a collateralized asset. Foreclosure can still yield part or all of your principal, sometimes with an ROI.
Real Estate Crowdfunding Market Growth
It takes more time and energy to diversify your investment portfolio, but the results are well worth it. When you take the time to seek out diverse investments, you gain a level of security that can’t be had through any single investment.
If you’re ready to start looking into an investment platform that allows you to invest in a tangible asset, in a core urban market and at your level of risk according to your comfort level, then reach out to us today.