Real Estate Diversification and Understanding Leverage

I would be dead broke right now if I didn’t strategically think about diversification and leverage. I believe this pandemic is teaching us a lot about both. On one side of my business, my revenue has tanked. However, it is buoyed by other healthy parts of my business.

We are in uncharted territory. In my city, the courts have been closed for a month and it doesn’t look like they are opening anytime soon. So…some of my tenants are taking advantage of this situation. My rental revenue is down 25% or more, and as you other investors know, profits plummet in line with decreased revenue. However, I own properties in A, B, C, and D class areas. By diversifying by area, I am still able to maintain the rental business and am looking at other investment opportunities.

While my rental business is taking a hit, I also have flipped houses and done wholesaling. This has provided the much needed cash flow to help my business thrive.

It is important to note that I was always the conservative investor regarding leverage. I knew I could get a loan to buy more property, however I always considered how many tenants it would take to cover all my expenses. I am in a very fortunate position that a low percentage of my tenants can cover all my expenses, not including renovation for new projects. That helps me sleep at night.

I hope we are all learning that diversification and understanding leverage are of extreme importance. This pandemic will expose all of our weaknesses so make sure to strategically apply these two concepts.

Michael Faurest

Agree about Diversification. I have 7 rentals in 4 different states. It helps me sleep at night because my markets all have different drivers.

Absolutely agree.

A pandemic / economic crash is not the time to start thinking about these things either. When times are good you should be making contingency plans for when things are going to be not so good.

My strategy at this point still involves relatively high leverage because I am still in growth mode, but I also make sure I have access to lots of capital if needed in bad times (cash reserves, line of credit, private loans etc)

Yes. totally right. Thanks for the information. :biggrin

An uncertain time for sure! My heart goes out to those affected so far. Hoping things bounce back soon!

It is absolutely true that diversification in real estate is a very important thing. I think everyone knows the rule “don’t put all your eggs in one basket”. And this is quite wise. But I also think that people can diversify their portfolio within a company. I’ve recently read an article that interested me. And it tells about such an opportunity. So I think it is also a good variant - invest in different projects provided by one company. I leave the link to this article so you could also read it:

In times like these it definitely does pay to be conservative with leverage. I think we all know at least one person who got caught in 2008…

I wonder how things will play out once the moratorium on evictions and foreclosures is lifted?

I wanted to make sure before the sale first in every point. And only after it the process starts. It is my opinion.