Crafting a Diversified Real Estate Investment Portfolio

Embarking on your first real estate syndication journey, particularly with us, often means you’re still grasping the intricacies of the process. You might be gathering funds to secure your position as an investor, or pondering which asset type best suits your initial venture into commercial property investment.

On the flip side, if you’ve already invested with us, your focus might be on diversifying your portfolio and deciding the sequence in which to acquire different asset types.

Great news awaits you!

In this article, I’ll guide you through building a diverse and complementary commercial real estate syndication portfolio. By the end, you’ll have clear insights into your next steps, regardless of your current stage in the investment journey.

Strategies for Portfolio Diversification Based on Asset Class

The key is selecting assets that are uncorrelated yet synergistic. My experience has led me to three distinct asset classes, excelling in cash flow, meeting tenant demands, and leveraging operator strategies.

I began with multifamily properties, later incorporating self-storage and mobile home park assets. Each asset class caters to different customer demographics, experiences varying turnover rates, and employs unique business models for maximum value growth.

Investing in a single property concentrates your risk. However, spreading your investment across three or more asset types diminishes the impact of any single asset on your overall wealth. Diversifying across different properties in various markets within these asset classes further solidifies your portfolio’s diversity.

Multifamily Properties: An Important Component of Your Portfolio

Multifamily real estate syndications, positioned uniquely in the housing market, are a personal favorite. They strike a balance between the modesty of single-family homes and the affordability of mobile home parks.

These opportunities are widespread, covering every city, employment landscape, style, and demographic in the U.S., allowing for sector-specific diversification. Apartments range from top-tier to neglected, classified into various classes like A+, B+, C+, or D.

Lower class multifamily properties often present value-add opportunities. Operators who rejuvenate forgotten communities with modern fixtures, amenities, and fresh aesthetics usually see revenue boosts, positively impacting your investment.

These properties also offer regular cash flow from rental income, with tenant turnover typically occurring annually.

Self-Storage: Enhancing Your Portfolio

Due to their performance in up and down turns in the economy, consider adding self-storage to your portfolio. Modern self-storage facilities boast features like remote monitoring, keyless unit access, automated lighting and temperature controls, mobile app integration, alarm systems, and integrated services such as waste management and maintenance.

Storage units, with their varied tenant demands, may see monthly turnovers. Yet, they require minimal effort for re-leasing. Despite lower per-unit rents compared to multifamily properties, their compactness allows for a highly efficient space-to-revenue ratio. Furthermore, the diversity within the self-storage asset class itself (size, climate control, access types, etc.) contributes to portfolio diversification.

Mobile Home Parks: A Solid Addition

Investing in mobile home parks (MHPs) might initially seem unexpected, given their historical stigma. However, their status as the last tier of affordable housing, coupled with no new zoning permissions, has made MHPs increasingly attractive investments. The tiny house trend and broader housing shortages have further legitimized MHPs.

MHP residents often rely on park management for maintenance and security, as their budgets cover only basic living expenses. This dependency provides opportunities for park owners to implement impactful improvements with minimal investment. Operators typically shift from park-owned to tenant-owned homes, stabilizing revenue and improving morale. Turnover is low, and well-managed MHPs tend to generate robust cash flows.

Building a Portfolio with These Three Asset Types

These three asset types—multifamily, self-storage, and mobile home parks—can significantly diversify your portfolio. By investing in various property classes in different metropolitan and suburban areas with diverse employment and population profiles, you spread your risk thinly across all your investments.

This diversification strategy isn’t instantaneous but requires a long-term vision. If your goal is to build a network of 20+ syndications across the U.S. for cash flow and appreciation, this is a strategic method to achieve it.

As you’re continuing on your investing journey and your understanding of real estate investing grows, you can gradually incorporate other asset types and classes.

Next Steps

Here at Expedition Equity we provide multiple ways to leverage the power of real estate syndications in your investment portfolio so you can take advantage of real estate’s cash flow, equity, appreciation, and tax benefits. 

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