The Importance of Diversification in Real Estate Investing

Many investment advisors will tell you the same thing; that it’s important to diversify your portfolio. Of course I have also heard Warren Buffet say the opposite, telling investors to “put all of their eggs into one basket and watch that basket”, but in reality he has very diverse holdings.

Why is it so important to diversify your real estate investments?

Well, the reason is that real estate markets rarely all move in the same direction at the same time (other than perhaps as was the case during the 2008 Global recession). If you ever need to sell part of your portfolio due to any number of reasons, you don’t want to be forced to sell into a downward market.

Using the Canadian real estate market as an example, right now Alberta is just coming out of their worst recession in 30 years. House prices are down, vacancies are through the roof, and it’s a full-on Buyers market. If you need to sell some rental real estate to generate cash, guess what, you’re going to take a hit!

BUT, if you own in Toronto, you’re riding the peak of the real estate wave! Prices are sky-high, multiple offers, etc. It’s a full on sellers market!

The Vancouver real estate market is an interesting one right now. Condos are still hot, but single family homes have cooled considerably, so if you own a bit of both, you’re probably in good shape.

The moral of the story is that it’s good to diversify your Real Estate portfolio so that you don’t get caught in a down market. That can mean different TYPES of real estate such as; condos, apartment buildings, single family homes, commercial, industrial etc. OR, it can mean different geographic areas such as another Province, the USA, or International markets.

Don’t spread yourself too thin, of course, but just keep this principle in mind when deciding where to invest your hard earned dollars next!

Looking for Real Estate investment or Property Management advice in BC or Alberta? Contact us here.

Chris Stepchuk, March 19, 2017

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