The three things every diversified real estate business must do

[Pratap Koppula]

This is the beginning of a series of posts I will be publishing on ‘Building a Diversified Real Estate Business Through Investment Strategy, Risk Management and Portfolio Management. I’d like to set the stage with this overview post.

In order to build a diversified real estate business, it’s important to step back and look at the real estate life cycle. This cycle involves planning, acquiring, operating, and improving the asset.

Successful real estate businesses are built on these three pillars:

• Investment Strategy
• Risk management
• Portfolio management

A comprehensive strategy leverages investment strategy, risk management and portfolio management. Investment strategy includes the identification of target markets, selection of investment, development of a timeline, and the creation of a budget.

Risk management entails identifying risks and devising strategies to counter them. When formulating an investment plan, investors must consider rate of return and risk factors.

Portfolio management involves diversifying assets to protect against market risk and generate returns. Creating a diversified real estate portfolio of different sizes and types in multiple locations, with varying financing structures and cash-flows, can reduce risk and create steady income.

Here are the guiding principles for building a diversified portfolio:

1. Create a diversified real estate portfolio to meet your investment criteria.
2. Research different types of real estate investments based on your risk appetite and cash-flow needs (Rental, Commercial, Hospitality, Industrial)
3. Develop a timeline and budget for real estate investments and decide affordability.
4. Evaluate markets to determine profitable real estate investments.
5. Evaluate potential risks and opportunity (Core, core plus, value add, and opportunity).
6. Calculate potential returns, monitor portfolio and adjust as needed, to meet your goals.

That wraps today’s post. In the next post I will cover RE Strategy essential elements.