Before I started investing in property I spent hours upon hours either reading books or attending seminars to learn as much as I could. To be honest this experience although very beneficial in providing me with knowledge and education it was also confusing with the different strategies and or opportunities that were available.
Through all of this learning, a word that I heard time and time again was Diversification. I didn’t just hear this with Property Investing material but in any type of Wealth Creating material there was mention of diversification.
As such I thought this was the key. The difference between being successful and not being successful. The reality though is that it isn’t so much the key but it is more a way to minimise an investor’s risk. I am sure you have all heard the saying, “don’t have all your eggs in one basket!”
The way I look at diversification is that it doesn’t necessarily mean that you try to invest in different investment vehicles, for example- property, currencies, shares and or a business. Although a few people do, I find this way of investing risky as in order to be knowledgeable and successful generally you must spend lots of time and resources learning as much as you can. It can take years to master a selected vehicle.
So if you were to invest in different vehicles I believe overall your results wouldn’t be great as you wouldn’t have mastered these different vehicles. I have also heard of many property investors purchasing in different locations or States within Australia. They do this as different States are at different points within the Property Cycle. Generally the investor will look for States that have under performed or been on a downwards spiral and purchase here with the hope that the market will turn around and create profits through an upwards trend. This type of investing has been called- counter cyclical investing. I actually call it being a speculator, as you are purchasing in the hope that the property market has bottomed and will increase.
The reason I love property investing over all other vehicles is due to the fact that you can control an asset and manufacture either growth in equity or cash-flow. But whatever vehicle you select ensure that you are passionate about it. Where you want to read or listen to pod casts in your spare time because it excites or interest you. Then within this vehicle you can diversify either through a strategy or products you purchase.
For example you may have a mix of buy and hold properties and cash-flow generating properties via property developments. When doing a development we also look at ways in which we can diversify. As if you are constructing for instance 4 new dwellings and will be selling some you don’t want to have product that is identical as if this is the case you are basically competing against yourself. By providing different products, e.g. a 2- 3×2 and 2- 2 x2 you can target a different pool of buyers. Giving you a better chance at achieving the outcome you desire.
So the next time you hear the word Diversification don’t feel disheartened thinking you need to be a master at different investment vehicles. Instead focus on one vehicle and diversify within that!
Happy Investing!