Ali Jamal is the owner and CEO of Stablegold Hospitalitya real estate investment company.
getty
Most investors already know that diversification is the key to any successful investment portfolio. However, I’d like to take it a step further and argue that diversification doesn’t have to be across multiple segments.
For example, one may want to invest in real estate, stocks, cryptocurrencies, etc. to give their portfolio a wide range of options. Take it from someone who has already done this; unless you are an absolute genius like Warren Buffet, diversification within one asset class is likely to yield the results you are looking for much faster.
Use fame to your advantage.
The reason for this is primarily because most investors are familiar with one or two classes versus a broader spectrum. This is certainly the case for myself as CEO of Stablegold Hospitality (SGH), a real estate investment and property management firm. Many years ago I learned that focusing on my field increased my returns by more than 100%. For SGH, this meant acquiring real estate from different asset classes or diversifying our interests.
However, I have found that the ultimate catch is a mixed asset class property. These are buildings that can provide multiple income streams, such as commercial units and residential units, all in one. A building that produces multiple revenue streams can really help hedge against market volatility within that geographic area, especially during times like these. In my experience, these buildings are also much easier to sell if you have an exit strategy, as more people are interested in buying because of the different asset classes it attracts.
If you’ve read my previous articles, you know I’m not a fan of real estate sales in general. Personally, I recommend that you find an outside property management company to manage the property instead. It can cost up to 20% of gross income to hire them, but I’ve found it to be worth it given the incredible amount of equity and stratification that can be built into that property over the years.
Do your research.
Before purchasing such a home, there are a number of aspects that are important to consider first. One of them would be the third party real estate management company mentioned above. Find one that specializes in at least one of the asset classes, be it residential, retail, vacation rental, etc., and make sure they are in the same geographic area.
It’s also important to find out if there are any local anchors for that property’s asset classes. For example, if the building has units that are licensed for vacation rentals or tourism, are there any local events that attract tourism during the year? Researching the rates on Airbnb can also give you some clues about which times of the year you can expect higher occupancy rates.
If the building has commercial units, research the migration rates of small businesses to the area in which the building is located. I think the local chamber of commerce has always been a great resource for these kinds of questions.
One of my own examples is a property that my team is currently assessing: a multi-purpose building in a location with approximately two million inhabitants. It has six units on the top floor that are licensed and zoned for daily rental, while the lower floor splits into six private office suites on one side and four retail stores on the other. From an investment perspective, this building is a gold mine. We can diversify our revenues within one building, which is easier for us to manage.
From a macro perspective, it also works beautifully because different assets are affected at different times, or at higher risk depending on what’s happening locally. The level of risk is mitigated by different types of real estate in the building. For example, during a pandemic like with Covid-19, there could be a high demand for the private office suites, which will help balance the low demand for daily rentals with fewer tourists in the city.
Very soon, because of the multiple income streams it produces and the relatively lower risk it poses to a bank, this property could be easily re-evaluated. For serial investors, that means more money that can be used for the company’s next investment.
And this is just one example of why I believe that diversification within a segment that is very well known outweighs the benefits of diversification across a broad spectrum of investments. Having a history of working with banks, other investors, brokers, etc. really helps me predict our outlook with more confidence when it comes to investing in real estate, thus leading to more successful decision making on our investments. I hope this guidance does the same for you in your own niches.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.
ukbusinessupdates.com Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?
