Investing in Real Estate: How to Diversify Your Portfolio

Andrew Carnegie—founder of U.S. Steel and one of history’s richest men—once observed, “More millionaires have been made through owning real estate than through all other industrial investments combined.”

Owning real estate investments remains one of the most effective means of growing one’s wealth. But to fully take advantage of the opportunities the real estate market affords, those planning on purchasing investment properties should familiarize themselves with the different types of investment products and should spread their investment across several widely different opportunities.

But how? Here are a few core concepts:

What Is a Portfolio?

Investors and industry professionals refer to a person’s collection of investments as a “portfolio.” This is a concept that basically encompasses all of your investments. So, if you own stocks, bonds and rental properties, that's what your portfolio consists of.

What Is Portfolio Diversity?

A portfolio is “diverse” when the investments it contains vary in relatively equal amounts. Keeping with our above example, a portfolio that is 90 percent stocks, 5 percent bonds and 5 percent rental properties is not diverse. A portfolio with 33 percent of each investment type would be considered diverse.

In the context of a real estate-specific portfolio, diversity means owning several different kinds of real estate investments.

Why Is Diversity Important?

This is a great question that a lot of new investors overlook. Here’s an example that may resonate with many. In 2008, the housing market collapsed. Many people lost their homes, and the average value of those homes went down dramatically. If you were a real estate investor who focused primarily on renting out houses, there's a good chance you went out of business in 2008.

But, if you were a real estate investor who was also receiving rent from properties associated with unaffected industries—like commercial real estate—you were more likely to survive the collapse.

In short, owning three houses is good. But owning one house and a grocery store is better because even if people don’t have the money to buy a new home, they’ve still got to eat.

How Do I Diversify My Real Estate Portfolio?

For the new investor, or for the investor who hasn’t explored much of the market, your first stop should be at the offices of an experienced REALTOR® who works specifically with real estate investors. An experienced investment REALTOR® can help you find the right properties—and the right balance of properties—to secure your wealth and make you a tidy profit.

This article is intended for informational purposes only and should not be construed as professional advice. The opinions expressed in this article are those of the author and do not necessarily reflect the position of RISMedia.

Dixie Somers is a freelance writer from Arizona covering Diane Stow for the real estate industry. She is a regular contributor to RISMedia's Housecall blog.

Cost vs. Value: The Home Improvement Projects With the Highest ROI in 2018

A strong housing market isn't necessarily all good news for sellers. As evidenced by Remodeling magazine's newly-released Cost vs. Value Report for 2018, average return on investment (ROI) for home improvement projects dipped across the board, with "upscale" projects taking the biggest hit.

The report, which measures the average cost of 21 popular remodeling projects and their average resale value one year later, found that garage door replacement has the highest ROI at 98.3 percent (up from 85 percent year-over-year). Backyard patio jobs garner the lowest ROI, at 47.6 percent (down from 54.9 percent year-over-year).

The reason for the sweeping decrease in ROI isn't immediately obvious, but Remodeling magazine's editor-in-chief (and manager of the report) Craig Webb notes that it's likely related to the strength of the housing market currently.

"It's not clear if...nationwide affordability concerns are leading (real estate) pros to question the value of renovations that would make a house even more expensive at resale," says Webb.

However, a silver lining from the report relates to when the data was compiled. Remodeling magazine put all the cost information together before the country was struck with several natural disasters, including massive forest fires and several hurricanes. Since then, building supplies and the price of skilled labor has increased, but that's expected to change over the course of 2018. As a result, expect to see the ROI of most of these projects level out by the end of the year.

Despite these events, some longtime trends continued through the new year. Remodeling is still far more cost-effective than replacement, but, according to real estate pros, replacing is still the way to go. This year, there's a 20-point difference in ROI: 76.1 percent for replacement jobs, versus 56 percent for remodeling.

Nationally, when it comes to renovation ROI, curb appeal still wins out. Here are the top five projects with the greatest ROI in the report's "midrange" cost category:

Manufactured Stone Veneer (97.1% ROI)

• Average Cost: $8,221
• Average Resale Value: $7,986

Entry Door Replacement (Steel) (91.3% ROI)

• Average Cost: $1,471
• Average Resale Value: $1,344

Deck Addition (Wood) (82.8% ROI)

• Average Cost: $10,950
• Average Resale Value: $9,065

Minor Kitchen Remodel (81.1% ROI)

• Average Cost: $21,198
• Average Resale Value: $17,193

Siding Replacement (76.7% ROI)

• Average Cost: $15,072
• Average Resale Value: $11,554

The top five projects with the greatest ROI in the report's "upscale" cost category are:

Garage Door Replacement (98.3% ROI)

• Average Cost: $3,470
• Average Resale Value: $3,411

Window Replacement (Vinyl) (74.3% ROI)

• Average Cost: $15,955
• Average Resale Value: $11,855

Window Replacement (Wood) (69.5% ROI)

• Average Cost: $19,391
• Average Resale Value: $13,468

Grand Entrance (Fiberglass) (67.6% ROI)

• Average Cost: $8,591
• Average Resale Value: $5,809

Bathroom Remodel (56.2% ROI)

• Average Cost: $61,662
• Average Resale Value: $34,633

Nationally—and on the complete other end of the spectrum—here are the five projects with the lowest ROI in the "midrange" cost category:

Backyard Patio (47.6% ROI)

• Average Cost: $54,130
• Average Resale Value: $25,769

Master Suite Addition (56.6% ROI)

• Average Cost: $123,420
• Average Resale Value: $69,807

Major Kitchen Remodel (59% ROI)

• Average Cost: $63,829
• Average Resale Value: $37,637

Bathroom Addition (59.9% ROI)

• Average Cost: $44,717
• Average Resale Value: $26,769

Deck Addition (Composite) (63.6% ROI)

• Average Cost: $17,668
• Average Resale Value: $11,239

The five projects with the lowest ROI in the "upscale" cost category are:

Master Suite Addition (48.3% ROI)

• Average Cost: $256,229
• Average Resale Value: $123,797

Major Kitchen Remodel (53.5% ROI)

• Average Cost: $125,721
• Average Resale Value: $67,212

Bathroom Addition (54.6% ROI)

• Average Cost: $83,869
• Average Resale Value: $45,752

Bathroom Remodel (56.2% ROI)

• Average Cost: $61,662
• Average Resale Value: $34,633

Grand Entrance (Fiberglass) (67.6% ROI)

• Average Cost: $8,591
• Average Resale Value: $5,809

The 2018 Cost vs. Value Report compares, across 149 markets, the average cost of 21 popular remodeling projects with their average value at resale one year later. Average resale value is calculated based on estimates provided by real estate professionals. View the full report, including project descriptions and city-level data, here.

“There’s no place like home,” as the old saying goes. That’s especially true when it comes to an investment.              

You live in and love your home, but there might come a time when you have to leave it. And when that time comes, you’ll want to get as much money as you can for your property so you can move onward — and upward.

In order to increase your abode’s value, you might think you have to put in a ton of time, effort and money, but that’s not entirely true. Instead, you can take on weekend projects over time to spruce the place up so when it’s time to sell, you have a completely updated property that’ll end up selling itself.

Ready to get to work? Roll up your sleeves and start on one of the following five weekend projects.

1. Repaint Your Kitchen Cabinets

When it comes to smart investment in your home, the kitchen is one of the best places to start. Buyers expect kitchens to be updated. Stone countertops, stainless appliances and sleek flooring all make a space feel modern. Obviously, these changes require a lot of money and, sometimes, a lot of time. That’s why you can tackle it in bits and start first with your cabinets.

Old wooden cabinets with equally dated hardware — think oak doors with shiny brass handles — don’t require a complete gut job. Instead, spend a weekend repainting them a more neutral hue. Finish the project off with new metallic knobs and pulls to complete the modernized look.

2. Make the Eye Go up With Crown Molding

Most homes have roughly the same ceiling heights, but there’s a little trick to make yours look bigger — crown molding. Yes, that white line at the top of your painted walls will draw eyes upward, making the room appear airier than it may very well be.

The project is easy enough to complete, too. You might not be able to install molding throughout your entire home over a single weekend, but you can certainly tackle the project on a room-by-room basis. Again, start with the spaces likely to draw in the most moolah:

• Kitchens
• Bathrooms
• Living spaces
• Master bedrooms

These tend to be the make-or-break rooms when it comes to a big purchase. Crown molding adds a bit of detail, a feeling of luxury that’ll certainly add to the bottom line.

3. Boost Curb Appeal — and Backyard Bonuses

No one will come in your home unless the first impression is stunning. Another DIY project should be a landscape overhaul of your front yard. It can be something as simple as adding a path of pavers to your front yard or sprucing up your flowerbeds with colorful blooms. All of this will catch the eye of potential buyers — and fatten up the bottom line of the offers they make.

Another easy fix — your garage door. If it’s street-facing, it’s another area for prospective buyers to look at, and it has a great return on investment.

You don’t have to stop with the front of your home. Especially if you live in a climate that permits lots of outdoor activity, you’ll want a backyard to match. Some may require you rent or buy tools for landscaping and other applications, but imagine the payoff with, for example, the beauty of a functioning fire pit in your backyard. Not only will you be able to enjoy it while you’re still living in your home, but potential buyers will easily be able to envision themselves sitting around a fire.

4. Beautify the Bathrooms

Bathrooms have a big effect on buyers. They expect clean, modern updates, just like in the kitchen. Overhauling your powder room is an easy weekend task that might require small swaps, such as a new modern light fixture over the vanity or a new vanity altogether.

Your full bathrooms will require a bit more attention if you want them to be up to snuff. Again, look in the familiar places:

• Lighting fixtures
• Cabinets
• Hardware
• Countertops
• Tile

You don’t have to shell out a ton of money to have someone else re-tile a wall or backsplash in your bathroom, either, if you have the patience to demo and tile the space yourself.

5. Out With the Really Old

Some accents once considered fresh and fashionable now give your home a dated appearance. You probably already know what in your home screams 70s, 80s or 90s. Whatever it is should go in due course.

The list of outdated design elements is truly endless, but some of the biggest offenders are old-school wallpaper, the floor-to-ceiling wood paneling that may or not be actual wood, and, of course, popcorn ceilings. By removing these three offenders alone — a popcorn ceiling doesn’t take much effort — your home will snap right back into 2017.

Once people start envisioning themselves living in your home, you won’t have to envision offers pouring in — they’ll start coming thanks to your hard work. You go, weekend warrior.