Diversification is important for an investment portfolio. In this post, we will give you some tips on the best ways to do it, focusing on your Omaha real estate investments.
You know that investing in real estate is the best way to build wealth, but are you paying attention to diversification in your portfolio? The old adage, “don’t put all your eggs in one basket” applies to broad categories, like stocks and real estate, and within categories. We’ll take a few minutes here to discuss blending real estate, stocks, and mutual funds in your investment portfolio to create a diversified wealth-building strategy.
First, Add Real Estate to Your Portfolio
Real estate is a unique investment because there is an underlying asset of value. Even as the stock market fluctuates and housing prices rise and fall, real estate has a constant underlying value–people need a place to live. It’s critical to find the right property in the right area, but a good investment will generate reliable income regardless of what the market is doing.
Most people think rentals when they think of investment property. It is the most common and usually the most consistently profitable. Most people start their real estate investing with single-family residences (SFR). We started by renting our basement to cover most of our rent (now called house hacking). Whether you opt for a single-family, multi-family property, or even a small apartment building, residential rentals are a great place to start investing. It’s important to research the local rental market, neighborhoods, and several specific properties. Consider up and coming neighborhoods where rental properties will soon be in high demand. Chenoa Investment can help you to find the perfect rental property to add to your portfolio.
Many investors miss out on commercial property because of the costs and unique maintenance needs. However, many of these expenses can be passed on to tenants and they are fully responsible for interior renovations. The right commercial property can provide a solid paycheck each month. Also, most commercial tenants are more professional than residential tenants. They are more likely to pay rent on time and report any problems or repairs that are needed. One downside to consider is that it can be much more difficult to rent commercial properties, resulting in longer vacancies. Also, keep broader economic trends in mind: people are shifting to remote working (less office space) and online shopping (less retail space).
Mobile homes and even mobile home parks can be an excellent addition to an investment portfolio. In fact, many successful real estate investors move into mobile home parks later in their careers, quickly adding affordable and profitable units. There is always a demand for affordable housing and mobile homes offer relatively low up-front costs. Management can be a challenge and you’ll need a good strategy to care for tenants. Owning a mobile home (or 50) can provide great diversification and grow your equity.
Land is often overlooked as a real estate investment. That may be somewhat fair since it ties up your money and doesn’t yield a cash flow. On the other hand, it is an extremely low-maintenance asset, with the potential to appreciate quickly. In appreciating areas, owning the right lots can position you for great appreciation. Knowing when to act is critical and very difficult. Unlike residential rentals, which as easily predictable, land purchases are speculative–you’re betting on a bunch of factors you can’t control. If you are in a position to gamble with a share of your portfolio, land can yield stellar returns.
The Stock Market
Investing in the stock market is a given for any portfolio since the government now requires companies to default to contributions. It is a logical place to start investing since its easy, built into your paycheck, and facilitates small purchases. Unfortunately, watching the stock market is likely to stress most people out. The wild fluctuations can be a painful ride. Since most people can’t time the market, the slow drip of contributions into a retirement account tends to smooth out the peaks and troughs. Remember that diversification also matters in your stock portfolio.
Mutual funds are a collective investment with money from many investors pooled and invested in stocks, bonds, short-term money market instruments, and/or other securities under the direction of a fund manager. They require less attention than individual stocks and are available in most 401(k) and 403(b) programs. Funds are usually based on a theme, like large, small, or international companies. A new type of fund allows you to select your retirement date and the fund advisors will handle everything for you so you never have to know what your investments are doing. While that reduces the pain of the market fluctuations, its unlikely to create a fantastic outcome. Most funds are professionally managed, though some are now managed by artificial intelligence.
Our focus at Chenoa Investment is helping Omaha investors diversify their portfolios with solid real estate investment to create steady and consistent growth. We inspect and research our investment properties to make real estate investing simpler. We can provide you with the data and the property history so you make and informed decision when it’s time to buy.