Most of us are very familiar with the concept of diversification. We learned early in our lives that it is not prudent to put all of our eggs in one basket. We need to spread the risk around in order to avoid a single source of catastrophe. However, of recent, several in the financial industry are saying that diversification is actually deworsification. Some people say you should put all your eggs in one basket that you know very well and watch it closely. “Diversification is for idiots” says Mark Cuban. Warren Buffett says, Diversification is protection against ignorance, it makes little sense if you know what you are doing.
So why not invest 100% in Real Estate?
Real Estate like every class of investments has its pros and cons. Some of the pros & cons of Real Estate Investing are:
1. Leverage : The ease at which you can access leverage for Real Estate in comparison with other investment classes makes it a very attractive investment class.
2. Control : Real Estate unlike some other investment sectors such as stocks often gives the investor more control.
3. Tax Benefit : Real Estate well executed gives the investor significant tax benefit in comparison to other classes of investments.
1. Lack of liquidity : It’s often difficult to sell Real Estate in a hurry at market price.
2. Lack of fractionality : It’s difficult to sell real estate in pieces or in fractions.
3. Lack of passive management : Real estate requires some form management or operation.
Even though Real Estate is a great investment, nothing beats doing your due diligence before investing in any investment class.. Even diversification is not a good protection against lack of proper due diligence. As a personal matter, I think since each investment class has its pros and cons, I find it prudent to invest in several investment sectors such as Real Estate, Stocks, Businesses, Bonds, Asset Based lending, Private Equity Funds etc.
At your service,
“Obsessed with Service”
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2018 HomeLight Top 5% National Realtor
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Fairdale Capital Management
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