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The Importance of a Well Designed Real Estate portfolio

A Properly Balanced Real Estate Portfolio True, returns from owning multi-family rental properties can be high, but the highest overall returns can be obtained only after a careful assessment of risk and with a well- designed portfolio of properties. The stability of the return from each property is key to the performance of the package. The best approach is to add properties only after considering how they balance others in the portfolio, in order to spread the long-term risk and increase returns. Avoiding Vacancies – and Turnover The biggest risks of all: vacancy and turnover. An unoccupied unit brings no return, whatever its assessed valuation. Potential causes of vacancies should always be kept in mind, and a mix of property types in one’s holdings can mitigate the consequences inherent in the instability of the real estate market. Class “A” Characteristics For residents of Class “A” luxury complexes, prime location, and amenities are essential. “A” Tenants tend to be unaffected by the ups and downs of the markets, and  to be reliable in payment of rent. However, stable, high rents do not necessarily translate into high returns; actual returns can be low because of the substantial maintenance and renovation costs the investments requires. Other factors to consider:  new or newly-renovated complexes nearby, or conversely, the potential decline of the neighborhood might lead high-paying tenants to flee, leading to a re-evaluation of the worth of one’s holding. All this means that even a somewhat lower return can be viable as long as the units are continuously occupied Class “B” Characteristics Class “B” developments constitute the bulk of rental housing. A “B” tenant may be credit- worthy and looking for a lower price unit in a desired neighborhood, or could be  a less-credit-worthy tenant desiring a better complex. The property may be in an “A” location, but with much deferred maintenance and a dated design.  Upgrading and refurbishment of the property implemented over time should be part of the business plan, in the end can yield excellent returns to the portfolio. However, current tenants are likely than not to generally changing neighborhoods; however turnover may be a challenge during up and down cycles. Credit-worthy tenants usually continue...