It’s a case of not putting all your eggs in one basket. Typically, when we look into diversifying a real estate portfolio, there is a plethora of information online that can be confusing. Everything from public and private investments, stocks and bonds, equity funds and direct property investment is available with just a few clicks of the mouse, which can be hazardous to say the least.
Here are three tips on how you can diversify within your real estate portfolio so that your risks are minimized and potential profits maximized:
1. Vacation Rentals
For property investors in Dubai, vacation rentals are particularly attractive. This is largely due to the constant influx of business and leisure tourists and a huge expat community resident in the Emirate. Investing in vacation properties is very much on the rise, which is because tourism in Dubai has not been as negatively impacted as it has elsewhere in the world. Indeed the spectacle of Expo 2020 currently being hosted in the Emirate with vast crowds attending is very much a sign that the opposite is true.
A vacation property is another great way of gaining more income from the same square footage you would receive after purchasing a single-family property. There are also the additional advantages of having your investment property maintained to a high standard to attract short-term guests. For this reason, the margins for vacation homes can be significantly greater than for long-term rental properties which are much more likely to suffer considerable wear and tear.
If you’re lucky enough to invest in a holiday home that is located near a popular event space such as Expo 2020 or Dubai Opera, you can expect to see even higher profits. In order to get the very best deals on holiday rentals, you have to perform really thorough due diligence before making a capital commitment. Along with the location, consider the quality of finish of the property, the amenities it affords guests and its proximity to tourist attractions and you can boost your profits even further.
2. Private Equity Real Estate Funds
Private equity or real estate firms often take on the roles of fund and property manager. Perhaps the most common type of property fund is a Real Estate Investment Trust or REIT. This is an instrument that allows you to invest in property without owning the underlying real estate. The performance of your investment is dependent on the performance of the assets held by the fund or trust.
One of the big advantages of investing in a real estate fund is that you don’t have to make the same financial commitment as you have to when you buy a property outright. You’ll also get paid a dividend income which you can choose to reinvest to maximize your profits further.
Perhaps the most attractive aspect of a REIT or private equity fund is that you don’t have to take on the hassle of managing any property yourself. The fund takes care of security, insurance, ongoing maintenance, marketing, accounting and legal services and usually takes on a commitment to ensure void periods are minimized. In other words, investing in this way can really take away the headache of being a private landlord, without compromising your ROI.
3. Single Family Residential Properties
Buying a property within the busiest sector in rental markets means that you can achieve a secure and consistent rental income. This acts as better capital protection than other more volatile markets, such as stocks and shares. The current inflationary environment also means that more people are looking to rent luxury family homes than they are purchasing them. For an investor, this ensures a high demand for rentals and minimizes the chance of void or prolonged vacancy periods.
When investing in a single family home, it is important to remember that the initial cost should be low enough to ensure there is positive cash flow as soon as possible after acquisition. When you are investing in a property you aren’t living in yourself, you need to minimize the times when it is not earning a rental income. However, this doesn’t necessarily mean that you have to invest in a turnkey property. Buildings in affordable or underdeveloped areas might require a little more money spent on them initially but they are more likely to attract steady, long-term renters and ultimately, can represent more attractive returns.
We’ve mastered the art of buying and selling real estate in one of the world’s most sought-after property markets. Reach out today to diversify your real estate portfolio with our expert guidance, localised knowledge, discretion and world-class service so you can achieve your real estate goals with complete ease.
