You shouldn’t put all your eggs in one basket. Proverbs don’t often make for good business advice but this one does. The idea manifested into diversification, a cornerstone tactic in the success of many businesses today. It takes many forms but realty is often the key for both commercial and personal use.
The concept is nothing new. Diversification has been around as long as business itself but it has never been more common. Today, multinational conglomerates own or invest in an endless number of different industries and sectors. Markets fluctuate so investing in different fields reduces risk. It’s a simple enough concept but one which is hugely useful to business leaders.
This process can be substantial. Brands can shift into whole new fields or industries with their diversification. Nintendo started life as a playing card company. It diversified into video gaming and soon became one of the biggest names in the industry. American Express began as a package delivery service. It started offering its own money ordering service to compete with the Post Office. The company found that its best customers were banks and soon moved into the world of banking.
But these transitions can also be subtler. Starbucks moving from coffee into the world of food doesn’t represent a seismic shift. Customers come in for their morning cappuccino and may want to pick up a sandwich as well. Similarly, Betway has diversified from online casino to sports betting and esports. Clients will want to bet on other things. It’s often about knowing your customers and whether they would be interested in your new product.
But those examples are more about product diversification. The process occurs on a company-wide scale with conglomerates owning or investing in a range of different fields. Look at Virgin with its stakes in everything from airlines to music labels and cola. Microsoft and Google are two of the biggest firms on the planet because they own or have invested in so many other companies.
This also happens on an individual basis. Personal investment portfolios are a must in some parts of the world but happen on a far smaller scale. This ranges from owning a couple of stocks in a certain company to investing in a local business. If people have a little money to spare it makes sense to invest it.
But perhaps the only universal investment is realty. For the last 50 years, real estate has been one of the safest investments an individual or company can make. Real estate ranges from small plots of lands to massive downtown skyscrapers. The amount of money needed to invest varies as a result. Individuals with a spare bit of cash can purchase an apartment to rent out. Businesses with a little extra capital can buy out the building they operate in and let additional units.
But realty offers far more opportunity than just outright property purchases. Businesses and individuals can invest in Real Estate Investment Trust (REIT). REITs are companies which own, finance or operate real estate which produces income. Capital generated from the REIT is returned to investors in the form of dividends.
REITs take many forms including equity, mortgage, public, and private. It’s up to the individual or business to decide the best form of investment. People and companies turn to REITs for numerous reasons. For one, few individuals have the time to research markets and trends as well as the legwork needed to manage realty. REITs cut out some of the effort but take a premium because of it.
But it’s important to diversify within your new investment areas. Markets fluctuate in different areas so it’s vital to invest in a variety of places and even countries if possible. Similarly, investment in different property styles is key. There’s little use in investing all your capital in San Francisco-based apartments if further down the line, such properties fall in demand.
Another way to invest in real estate is to back debt and equity. Equity investors receive dividends from rent and appreciation when the property is sold. Debt investors buy loans which have been approved by real estate agents. This secures a steady stream of cash on investment. The latter is cheaper but obviously, the investor doesn’t receive dividends from property sales having only bought the loan.
It can be tough for individuals and businesses to diversify their portfolios. The practice is necessary with fluctuating markets. These transitions can be subtle or more drastic and their success is often unpredictable. Property remains one of the most reliable investments for both individuals and companies. The opportunities are endless regardless of budget. Whether it’s a conglomerate buying a skyscraper or an individual investing in a REIT, realty is vital to diversification.