Source: Zillow / #Housing #Economy
SEATTLE, WA – Investing in real estate involves all sorts of risks – one of which is the vulnerability of your portfolio to the ups and downs of the housing market. How are you protecting your investment against the housing crises of the future?
According to Zeno Adams, a Professor at the Swiss Institute of Banking and Finance at the University of St. Gallen who spoke at NAREIT’s 2013 investor forum REITWeek, investors can reduce the financial hit they take in a tumultuous housing market by geographically diversifying their portfolio.
The lesson is similar to the warning against putting all your eggs in one basket. If all of your properties are in the same city, your investment could be in could be in for a huge shock if the region experiences a housing crisis. The situation brings to mind 2010’s foreclosure crisis, where strategic defaults and foreclosures impacted neighboring home values in hard-hit communities across the nation.
He expressed his surprise that investors aren’t more cautious about acquiring properties in the housing recovery.
“I had expected that the burst of the housing bubble in the U.S. and elsewhere would have been such a shocking experience to investors that they would be very alert and reluctant to invest in markets with unusual high house price growth rates,” he explained.
Sure, we may be on the road to housing recovery today, but amidst the hungry investor appetite in the housing rebound it’s good to remember Adams’ advice to be cautious. Focusing on geographic portfolio diversity protects your investments because REITs in a similar area will be under the same economic shock if another housing bubble were to hit. Strategically investing in REITs across a map minimizes risk spillover when a crisis does happen – all of your properties won’t be influenced by the same economic factors.
Have you changed your investment practices in the wake of the housing crisis? Share with us in the comments section below.
Article Contribution Credit: This article was contributed to MultifamilyBiz.com by Jennifer Chan, marketing coordinator at Zillow. She is also the editor of the rentals section of the Zillow for Pros blog, which brings real estate professionals their daily dose of real estate marketing tips, tricks, and strategies.