With the recent real estate market crash, a lot of mortgage companies, real estate agents, and brokers are now gone. Sure, some experienced investors have been hurt, and the toll the bubble will take on the economy is still unknown, but most investors who were savvy are not pulling out of the real estate investment market.
Just like in the stock market, there are different sectors of the real estate market that ebb and flow based upon a number of different factors—and investors pick and choose from these areas. Often the investor is selling stocks in one market to pick up rising stocks in another, whether the sector in question is technology, pharmaceuticals, or oil.
In real estate investing there are different sectors just like the stock market, and at certain times some are better than others—as I’m sure most of you know. And, everyone is rushing around trying to figure out where the jackpot is.
Ideally, one would like to find property that will increase in value no matter what the trends are in the market. And you can. The good investor will find property in areas that are on the rise that others might have missed—untapped areas. Now, with many home owners foreclosing, it’s good to own apartments, as these former home owners are looking to rent, and rental rates are going up as demand rises.
Quick list of sectors or types of real estate investors:
• College market – apartments for colleges or universities
• Commercial real estate
• Single-family homes
• Mulit-family homes
• Land prospectors
• Large commercial real estate – malls or large business complexes
• Condominiums
• The plexes: Duplexes, Tri-plexes, and Four-plexes
• Apartment buildings
• Vacation homes
• Mansions
• Residential communities
• Local: In state versus out of state
• Pre-foreclosure and foreclosed homes
• Pre-construction
• Restoration – specialized in restoring old homes or property deemed a historical landmark
• Event buying – real estate for an upcoming event like the World Cup or the Olympics
• Residential hotels
• Real Estate Investment Trusts
• Office buildings
All of these sectors or different types of investors have their good points and bad. But these points depend more on the state of the market. The current market encourages you to purchase condos, apartments, or duplexes. As anyone in the stock market will tell you: it pays to have a broad range of stocks and not to have all of your money in one sector—in other words, diversify.
Many of these sectors or investor types also overlap, so they’re not necessarily one or the other, but many times a combination. For instance, an investor might buy a foreclosed home and turn the home into a triplex if the local laws and regulations allow for this.
Also, you may have noticed that these properties are a mix of residential real estate and commercial real estate. Both of these types depend on different variables that affect their market in the future, such as interest rates for the former and job growth for the latter. Use these factors as clues to help you decide where and what you invest in.
REMEMBER: Diversify, have a plan, get creative, and stay in the game.
So far, we’ve discussed how beneficial diversification is and why people do it. But there’s another perspective to the matter. Suppose you’re new to real estate investing but don’t want to take a huge risk with just a single piece (or type) of property. Anything could go wrong, such as a market failure in the near future, a natural disaster, or other unforeseen events that could reduce the value of your property, or worse, ruin you.
These are understandable concerns, and people are often very hesitant about placing all their eggs in one basket, especially so early in their investing career. As a result, investors diversify their real estate portfolio, so that all their investments as a collective unit will buffer the failure of one property if that should ever occur. This means that their risk is spread across many sectors, as it were, rather than concentrated into only one.
Only professional investors—or those who know exactly what they’re doing—concentrate their investing efforts into a single type of property. These people have the experience and the know-how to make the right decisions, such as where to invest, what type of property to acquire, whether or not the market is conducive to profits, etc. However, the pros were once amateurs too, so all you need is a lot of practice and experience to become a pro as well, if that’s what you want.
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