The popular sentiment ‘don’t put all your eggs in one basket is very common in the real estate market. The need for diversifying is not just limited to overall holdings, your real estate portfolio must have a diverse collection of properties, and here’s why.
What is a property portfolio?
A property portfolio is a collection of real estate investments owned by either an individual investor or a company. You can become a full-time real estate investor and capitalize on as many opportunities as you want. This will give you the leverage to many advantages in life.
Like everything, the first part involves doing market research and gaining complete knowledge. You must be aware of the rental yields (percentage of rents that you will get from your investment), growth prospects, population, zoning laws, construction permits, rental demand, and taxation rules etc. of your city and that area you are interested in investing. For example, the cost of land varies in Islamabad and Lahore. In the former, the prices are relatively higher.
Types of property investment in Pakistan:
- Plots: Vacant land area that people have ownership rights.
- Residential Properties: Residential are further divided into cooperative housing schemes, apartments, houses, vacation homes.
- Commercial Properties: Properties that are built for business activities and purposes.
- Industrial Properties: Real estate land that is used for the process of manufacturing, packing, or storing goods.
- Agricultural Properties: Agriculture is further divided into cultivation farms, ranches, forests, and orchards.
- Government Properties: Properties such as schools, parks, hospitals, mosques etc.
Having a stress-free retirement and financial freedom is everyone’s demand and need. This is why we recommend achieving the maximum potential of owning multiple properties in order to achieve maximum income through rents and equity. Starting off with one should be the baseline. One learns and relearns a lot along the process.
Risk is divided/diversified
Stepping into real estate does not promise a risk-free entrance. The risks associated with property investment cannot be eliminated at all. However, having various properties invested across multiple platforms such as commercial and land, irrespective of locality, you can diversify and divide your risk. Since investment equity and revenue are dependent upon several factors in the market.
Moreover, the growth of your property portfolio also highly relies on the growth of the area. Scattered properties lower the growth risk allowing you to build and accumulate wealth faster.
Increased appreciation and income flow
The higher the demand for your property, the higher the cash flow and price. The appreciation of a property is directly proportional to its demand. And this again highly depends on the area as well, irrespective of its scarcity. Home improvements also count a great deal into this.
Renting out your properties is another way to get the cash coming in. Diversifying not only increases appreciation but income flow as well.
Everybody wants a steady flow of income and a portfolio free of debt. Initially, when you are buying multiple properties, your debt is huge. But, down the road investors can easily manage to sell off some of the properties, attain equity and clear some of their debt. This results in a smaller but debt-free portfolio. With the properties in their possession, they can easily generate a passive amount of income for the future and retirement.
On the contrary, if you only have one or two properties in hand then this formula cannot be applied. Mortgage cannot be cleared by liquidating a portion of your property. The property does not work like stocks.
A leading advantage of a property portfolio is the access to equity. If the properties are rising in value that gives you the chance to reinvest. This is a huge benefit that can upscale your lifestyle drastically.
Increase profitability with multiple rents
If you have invested your money across several portfolios then that gives you the leverage for even more profit. For instance, with time the rate of rent also changes, having multiple properties means having multiple potential resources of income.
This way, you can easily cover your mortgage since that stays the same, except for the interest rate that tends to fluctuate.
Real estate investment is a bouncy road, some days are in favor and some not. However, a wise investor knows when the time will be in his favor. Building a portfolio requires knowledge and the ins and outs of the market. Although no one has the crystal ball yet there are many pointers or indicators that one can look out for.
If you are a newbie, you must definitely keep in check the upcoming or ongoing trends that are happening in your city. Always be aware of the big investments opportunities that are happening. Get in touch with people for reviews etc.
Timing is everything, but knowledge is key, too.
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