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Should you diversify your commercial portfolio?

By Greg Bell

Investing in commercial property is a smart move for putting your money to work for you. But to really take your investment strategy to the next level, you should really consider diversifying your commercial portfolio.

Why should you diversify?

Much like any form of investing, commercial investing is all about lowering your exposure to risk to maximise your profit. If you know an investment is a sure bet with little to no chance to lose your money, you’ll make that investment 10 times out of 10.

Unfortunately, it’s near impossible to accurately predict which investment is a safe bet, no matter how much research you conduct. Without knowing 100% how to avoid risks, you need to incorporate a smarter strategy to ensure you get a return on your investments.

Portfolio diversification serves as one of the best ways to mitigate risks. Putting all of your money into a single commercial property leaves you open to losing your entire investment if that particular property experiences a prodigious drop in value or even goes bankrupt.

How does commercial portfolio diversification work?

Commercial portfolio diversification works by spreading your investments across a variety of projects and properties.

It does take a bit more time and effort to research and locate the properties best suited for a diversified portfolio in this case, since you’ll be working with more than location.

What should you diversify to?

While commercial property investment diversification offers the best chance for building a lucrative portfolio, there’s no clear-cut formula for what commercial properties you should diversify into.
Each type of commercial property will come with its own benefits and downsides, with extenuating circumstances impacting your ROI.

Generally speaking, there are six types of commercial investment properties:

  • Land investments – This is the raw, undeveloped land.
  • Office buildings – These may range from high-rises in a big city, to single-tenant spaces in small towns.
  • Retail space – These are similar to office buildings; however, location and foot traffic are important to consider for retail spaces.
  • Storage units – These might not sound exciting, but there’s definitely money to be made with these types of property.
  • Multifamily housing – These are essentially apartment buildings where individuals or families rent out properties units.
  • Industrial property – This can include manufacturing facilities, warehouses, factory space, and more.

With so many factors and types of property in play, one thing is certain: Working with a respected commercial investment company, like Ray White, can help you find the best strategy for diversifying your portfolio.

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