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Real estate diversification

Investing of all your capital into a commercial or residential real estate property market can be risky. As in any other investment (such as stocks and bond) diversification is an important part of the overall strategy. In real estate this can be accomplished by allocated a percentage of the investment to commerncial real estate and another percentage to residential. The actual percent allocation for each one needs to be determined by your capital level and risk tolerance.

Recent financial events that proven the benefits of this technique, the fallen of residential real estate as part of the real property estate boom crash had little impact on the commercial real estate, now the reserve is occuring where residential real estate is starting to bounce back but commercial real estate is starting to enter a depressed cycle. This alternation of cycles between residential and commnercial can provide protection to ones real estate property investments. In other words if properly diversified among the two the losses in one sector would be balanced with the gain in the other sector.

The following characteristics can be observed:
1. Commercial real estate requies a higher level of capital
2. Commercial real estate has the advantage of long term leases
3. Residential real estate tenants are easier to find
4. Commercial real estate tenants are directly impacted by recessions


For new real estate property investors it is recommended to stay exclusively in residential real estate, commercial real estate requires more experience and different contract requirements that the average person is typically not exposed during their lives. However once a good comfort level and confidence has been acquired getting into commercial real estate property investments might help diversify and expand ones portfolio.

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