Adapted from the March 2024 PREP Newsletter
A friend of mine, who also happens to be a Park Row Equity Partners investor, recently joked with me that I suffer from “TMP”. This startled me for a brief moment. Was this some sort of ailment I hadn’t heard of? “Too Many Properties” he declared, and we laughed together.
This particular individual is invested in four of our properties, and we couldn’t remember the name of the property we were discussing, hence his comment.
The Park Row Equity Partners investment portfolio currently consists of over 35 properties nationally. Let’s dissect whether that is in fact “too many”.
What are the three most important words in real estate investing? Location, Location, Location. And what’s the fourth? DIVERSIFICATION. Yes, multi-family investing is arguably the lowest risk real estate investment asset class with the highest level of risk-adjusted return given the stable demand for housing, but it is still extremely crucial to diversify one’s portfolio. If an investor has only one million dollars to invest, I would rather divvy that allocation up into five different deals than to put all of it into one. Thankfully, PREP has never lost money on a deal, but not all investments are “home runs”, so using diversification and the hedge of investing within various markets and properties, comes into effect.
The market in which a property is located has an impact on an investment portfolio’s diversification, and market selection holds high potential for diversification and is an important part of the real estate investment process. As an example of this, institutional investors tend to seek out risk-adjusted returns on their investments, with a focus on diversifying their portfolio. Therefore, most of these investors tend to invest across different markets to avoid concentration risk. This strategy of diversification plays an important role in how PREP selects investment properties and should be a factor in our investors’ approach.
Additionally, each investment property has its own risk-return profile, which if they come together to form an investment portfolio, can provide another layer of diversification. Each of our investors is able to view his or her personalized portfolio through our online portal, and just like my team at PREP, can see this strategy in real-time: how we are all maximizing investment returns while minimizing overall risk.
So, yes, perhaps I have “TMP”, and maybe you should too.
And on a personal note, I’d like to take the opportunity to wish those of you who will be celebrating the upcoming holiday of Passover a Chag Kasher V’sameach!
