REI INK

Due Diligence

Co-Living: A Powerful Strategy

Investors are Beating Uncertainty with a New Investment Model By Frank Furman For the past decade, single-family real estate investors have benefited from a seemingly iron-clad law that a property you buy today will be worth even more tomorrow. Low interest rates and eager lenders have saved many, many marginal deals. How disciplined does your underwriting and valuation need to be when the most common lament you hear from investors is “I wish I’d bought more”? Today, uncertainty reigns. Interest rates are up and poised to go higher. Planned rent increases in every proforma aren’t looking as easy to pass through. Seemingly overnight, some of the boldest operators have found pause. But the fundamentals of real estate haven’t changed overnight, only the need to apply those fundamentals with more discipline than was required yesterday. Savvy investors pair creative strategies with those fundamentals to create value where others can’t. Co-living has emerged as a powerful strategy to do just that. The model offers: » Yield // Increased cashflow and yield for the same asset » Counter-Cyclicality // Recession-proofing is built in » Differentiation // Fewer operators offer the model While the model offers an alternative way of evaluating an asset, the fundamentals are entirely the same. Yield is simply the net profit over the cost basis, what changes is the revenue potential, expenses, and cost basis. Optimizing Revenue Top-line revenue potential for a traditional asset is driven as much by location as its underlying attributes. The spread between one-bedroom and three-bedroom apartments at a complex is small relative to the rent differences between complexes. With location (and all the associated attributes, such as school district) fixed, investors are hard-pressed to truly add value to assets. In co-living, the revenue-generating unit is the bedroom, so the spread between a three-bedroom house and a six-bedroom house across the street is effectively double. By capturing and monetizing underutilized space (such as an unfinished basement or a formal dining room), investors can dramatically improve revenue potential within the existing footprint. In a recessionary environment where rent increases flatline, investors will need to think more creatively than simply increasing the rent growth assumptions in their model to boost yields. Expenses Expense underwriting is often a stumbling block for investors considering alternative strategies such as short-term rentals or co-living due to both variability and magnitude. For example, in a traditional single-family residential (SFR) business, utilities are of little concern both when acquiring and when operating the property. An inherent conflict also exists in the arrangement. The investor isn’t incentivized to invest capital expenditures (CapEx) in efficiency because the tenant pays for the usage, and the tenant won’t invest in CapEx because they don’t own the property. So, utility bills are higher than they ought to be, despite it being in the interest of both landlord and tenant for as small a portion of tenant earnings to be so dedicated. In both co-living and short-term rentals, the paradigm is shifted, with the investor footing the utility bills despite the usage being incurred by tenants and guests. This forces investors to include utility bills in their underwriting, estimating usage across services as varied as Wi-Fi and sewer in all four seasons. Fortunately, this is another opportunity for incremental value, as many simple fixes such as low-flow fixtures and smart thermostats can dramatically cut usage at a very reasonable cost. Many online tools make this process easy, and it’s a critical skill set to develop. Repair and maintenance (R&M) underwriting is similarly overlooked. Most proformas simply assign, say 2% of revenue to R&M costs and hope that anything outside that box will be covered by insurance or passing through egregious costs to tenants. While this may work in aggregate, it belies the snowball effect of such expenses. When times are good, tenants are happy, revenue is high and maintenance expenses are low. When the opposite is true and tenants are unhappy and overworked property managers add trip charges or fall behind, revenue suffers as tenants withhold payment and even more complaints add to the spiral. The costs of turning a whole house after a tenant moves out can easily wipe out the earnings of the past year for the property. The difference in a co-living context is that by diversifying within a property, generally with slightly shorter tenures, your overall variability is reduced. As a rule of thumb, R&M costs are about double what is underwritten for the same property rented traditionally for two reasons: services such as landscaping and cleaning services add to baseline R&M costs, and with several people in each house, there’s a steady stream of minor issues. However, by managing move-outs on a per-room basis, say, once every other month, rather than turning the whole house every other year, turn costs are both lower and flatter over time. The counter-intuitive insight is that the underwriting can be simpler and more predictable than for a traditional rental. The result is that for the right kind of property, using the same fundamental pro-forma you’d use for a traditional rental, you can engineer double your yield in a way that that other investors are just getting around to understanding. Cost Basis While evaluating assets you already own, it’s important not to leave out the investment required to operate a co-living property, be it additional locks for interior doors or furnishings. While the payback should be rapid, the costs are real. When evaluating a possible acquisition, the same process applies. While the costs will vary from house to house, it’s prudent to budget at least $10k for furnishings and other improvements. Investors can take heart in that there are few truly new real estate ideas and even fewer truly new market conditions. Short-term rentals seem as if they’ve taken the world by storm, but small proprietors have managed bed and breakfasts and inns for literally thousands of years. Co-living, far from being some millennial-focused experiment, is nearly as old, and indeed was the primary mode of independent living for

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Understanding a Property’s Claims History

Evaluating the Potential Investment By Shawn Woedl Knowing a property’s claims history helps in evaluating a potential investment. Past claims can affect insurance rates, coverage availability, and can shed light on possible hidden damage and risk. Doing your due diligence provides you with crucial information that can help you understand what to expect moving forward, mitigate the risk of an investment, and make an informed decision about whether a certain property is right for you. Past claims and future insurance Before providing coverage, many insurance carriers require you to provide accurate loss information on a property for the past three to five years. If this information is not disclosed before coverage is obtained and a problematic claims history becomes known, the carrier can either cancel your policy, or agree to stay on but increase your premium. Having this information before you buy insurance can help you anticipate what coverage you will need to have based on the history of the property. How do you go about obtaining prior loss history? If purchasing a property from the current homeowner, you would obtain a C.L.U.E., Comprehensive Loss Underwriting Exchange report. Under the federal Fair Credit Reporting Act, anyone can pay a small fee to request a copy of a C.L.U.E. report on a potential new property through LexisNexis or a similar data company. The report will provide you with prior insurance claims filed at the property, the type of claim, and approximate total payout. If you are purchasing the property from another investor, you can ask the seller to obtain a Loss Run report from their insurance agent or carrier. This can take two to four days to receive and includes the same loss information as a C.L.U.E. report. What exactly should you be looking for on these reports? The frequency and severity of losses are looked at as the same by most insurance carriers. Multiple minor losses or one catastrophic loss could both be seen as high risk; frequency is just as bad as severity. Controllable losses are looked at very differently than “Acts of God.” Fires (specifically tenant-caused fires), theft, and water damage are seen as more negative than wind or hail loss or lightning strikes. Look for what payouts were used for, particularly when it comes to water damage, fire damage, and criminal activity. If liability losses are present, carefully look at the cause of loss and consider if a tenant who was negligent for the claim is living at the property. Also, consider if there are additional mitigation efforts that should be done in order to avoid future losses. How does this impact the insurance you are able to obtain going forward? Some insurance companies also review loss runs and make decisions based on patterns. Even if they are minor instances, but if they happened frequently enough, they are going to adjust the types of perils insured and how much they will cover. For example, if the property you are looking into has had three small fires in the last seven years, only totaling $5-$6,000 each, then an insurance carrier might decide to require you to carry a $5,000 deductible to prevent the carrier from paying out on these smaller losses moving forward. The best coverage for you Reviewing the loss history can aid in decisions on the type of coverage you may need on a potential new property. For example, if upon receiving the report you notice that there are multiple theft claims, you should consider a few things. First, is this going to be a good area for you to invest in? Second, if you decide to move forward with purchasing the property, it may be in your best interest to obtain Special Form coverage to cover potential theft losses. Third, identify opportunities to fortify the property against future theft losses. Reinforce doors and windows, keep trees and shrubs trimmed, install motion-sensor outdoor lighting, install an alarm system, etc. Another example is Flood coverage. If the report shows that the property has a history of flooding, you first need to determine if the risk is worth it. If you choose to move forward with the property, it will greatly benefit you to customize your insurance package with Flood coverage. This is a separate policy that is typically excluded on a standard property policy. Choosing the right property deductible Your deductible is the amount you are responsible for in the event of a loss before your insurance company starts to pay a claim. The deductible you carry on your policy will directly affect the premium you must pay for coverage. The higher your deductible, the lower your premium rate will be. There are multiple factors you should consider when choosing a deductible, including your cashflow and business strategies, but past property losses are also a factor. Consider this scenario: Investor 1 and Investor 2 both purchase properties that sit next to each other. On paper, they are identical risks. Investor 1 chooses a $10,000 deductible and Investor 2 chooses a $1,000 deductible. Investor 1 is probably paying 20% less per year for insurance than Investor 2. Investor 1 did not review the loss history, so they did not realize that both properties have had five small water damage claims in the last seven years in the winter due to burst pipes. Investor 2 did review loss history and knew they did not want to pay for that loss every other year. With each burst pipe, both properties required $5,000 in repairs. After 10 years, there have been four more incidents and investor 1 has paid $20,000 out of pocket because the $5,000 repairs were under their $10,000 deductible. Since investor 2 knew this was a risk ahead of time, so while they were paying a higher premium, they are only out $4,000 over the same four incidents (4 times their $1,000 deductible). However, they also know that if they take steps to reduce the risk, they might be able to avoid the burst pipes entirely. So,

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Velocity & Scale in Acquisition Strategies

What SFR Investors Can Learn From iBuyers by Josh Jensen The process of buying and selling homes is complex and there is plenty of room for improvement. In today’s lightning-fast market, investors need all the help they can get. Low housing inventory and record-high buyer demand have created a frenzy in the U.S. real estate market. And it is not just the COVID-19 pandemic that is causing the demand. Millennials are reaching their prime time to purchase their first homes and Gen-Xers are hitting their peak years for move-up buying. And interest rates have been historically low.  What does it take to stay on top of your game in this market? Fueled by massive amounts of venture capital, real estate tech continues to advance and introduce innovative companies and new models. Adapting your playbook is not only a need; it is a requirement. Success depends on acquiring homes faster than ever before. Why iBuyers? An iBuyer, or “instant buyer,” is a real estate company that uses technology and algorithms to buy and sell homes quickly. iBuyers focus on speed, certainty, and simplicity, but they still have a way to go to gain market share on real estate transactions. In 2019, they accounted for 60,000 transactions (or 0.5% of the market), which had doubled from the previous year. Growth seemed promising, but due to the pandemic, iBuyer transactions were down 50% in 2020. However, they still have a growing national presence. Clustered in about two dozen markets, they are currently expanding into previously untapped markets, such as the northeast. On average, iBuyers purchase homes valued in the $250k-$300k range which is around the US median price point. This could mean additional competition for investors already competing with homebuyers. To gain ground, major iBuying players lose tens of thousands of dollars per home on average. But while they may be losing profit, they are learning valuable lessons on assessing and acquiring homes quickly and at scale. Lesson 1:Acquiring Homes Quickly With limited inventory and rising prices, investors need to be able to assess and react to available homes quickly. According to Zillow, home values have increased 13.2% over the past year and they predict values will rise an additional 14.9% in the next year. This means when you do find a home to fix & flip, you need to ensure the condition and cost of repairs still leaves room for profit. A home inspection is the most surefire way to gauge the condition of a property. An inspection will tell you a home’s cosmetic issues in addition to the state of the major systems and components such as structural, electrical, plumbing, HVAC, roof, attic, basements, foundations, windows, and doors. Every home has issues, even most new construction builds, but is the biggest issue a leaky faucet or is it a foundation issue costing upwards of $100k to repair? A good inspection will leave you with the answers to those questions and give you the confidence to move forward or to turn and run. To move forward quickly with an acquisition, investors need a qualified inspector onsite right away. The traditional method of finding an inspector is by looking at websites, listings, reviews, and calling or checking their booking system to see if they are available. This is tedious, time-consuming, and uncertain, which is why a lot of the major home-buying players, like iBuyers, are going in a different direction. Inspector marketplaces, like Inspectify, offer an easy way to book an inspection anywhere in the country in mere minutes. This not only saves valuable time but also gets a qualified professional on-site in days, not weeks. They can also provide added benefits like repair cost estimates. Lesson 2:Getting the Right Data When it comes to assessing and acquiring a home to invest in, an investor’s needs differ from those of a traditional homebuyer. Most inspections are standardized, but it is up to the inspector (and their state minimum requirements) regarding what information will be in that report. When considering a home to fix & flip, you may want to know additional details about the home such as countertop square footage, door and window dimensions, or measurements of the walls and floors. Those items are not found on a typical home inspection but could be a gamechanger when deciding on an investment property. There is no better time to collect that information than when an inspector is already on site. You could create a form for the inspector and hope they answer it or that they send somebody else onsite to collect that data. However, iBuyers have found a better way. They are working with companies like Inspectify to create custom inspection templates that collect the data they are most interested in and then feed it into their pricing models and acquisition processes. This approach is saving them valuable time and resources and is helping mitigate their investment risks. Lesson 3:Scaling and Cutting OPEX costs With iBuyers purchasing homes in dozens of metros across the country, they are learning that it can be hard to scale into new territory. You may have your acquisition process down pat in your area but that may not be where the next best investment opportunities are. Finding listings nationwide has become increasingly easier over the years since the birth of search portals like Zillow in 2005. But how do you get through the next part of the acquisition process from miles away? At first, iBuyers were setting up shop in each new metro and building internal teams to execute on home acquisitions. However convenient, hiring and keeping employees busy 40 hours a week brings a lot of overhead to the organization. It also keeps them limited to that geographic area and unable to pivot quickly when the market shifts. Now, iBuyers are taking a different approach and relying on companies like Inspectify to be their internal team. They can get the customized inspection data they need quickly and fed directly into their systems via API, saving them

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Risk Reward

Do Your Diligence on Foreclosure Homes by Rick Sharga Buying a property always comes with some degree of risk. That is true when buying a brand-new home or buying a property that is a century old. The trick, for real estate investors and homebuyers alike, is to do the due diligence necessary to minimize that risk. Foreclosure Properties: Higher Risk, Potentially Higher Returns Buying foreclosure properties adds a few elements of risk that aren’t generally factors in a traditional home purchase. Investors who specialize in buying foreclosure homes understand that, but are willing to take on that added risk due to the larger potential profits they often realize. There are three different types of foreclosure properties investors can purchase. First, there are pre-foreclosure properties. These are homes in the earliest stages of the foreclosure process, called a Notice of Default in states that practice non-judicial foreclosures and Lis Pendens in judicial states. In this stage, the homeowner is typically 90-120 days past due on their mortgage, and officially defaulted on the loan. The clock has started to tick on the foreclosure process, and the homeowner has a predetermined period of time (which varies state-to-state) to make up the missed payments, or the home will be sold at a foreclosure auction. If the default isn’t cured during this initial notice period, the lender sends a Notice of Sale, which informs the homeowner that the property is going to be put up for auction, either via a Trustee Sale or a Sheriff’s Sale, depending on the state laws. Properties at this stage of foreclosure are generally referred to as auction properties. At the auction, one of two things happens: either someone attending the auction bids a high enough amount to meet the lender’s sale price, or the lender repossesses the property, which in industry parlance then becomes an REO—or “real estate owned” asset which the lender will ultimately resell on the open market. These properties are generally referred to as REO homes or bank-owned homes. Those three types of homes—pre-foreclosure properties, auction properties, and bank-owned properties—all fall under the general heading of “foreclosure properties.” But there are significant differences in how to purchase them, the potential savings, and the respective risks involved in purchasing them. Navigating the Foreclosure Risk/Reward Spectrum Let’s take a look at the risk profile of each type of foreclosure property, and some of the things to look at in order to optimize results. Pre-foreclosure properties are probably the least risky of all foreclosure homes. Investors can negotiate terms directly with the homeowner either with or without the assistance of a real estate agent, and usually purchase the property using traditional mortgage financing. An investor can typically buy the property at a modest discount compared to similar properties, since the owner generally needs to close a deal quickly and with a high degree of certainty in order to avoid losing everything to a foreclosure auction. Ideally, the investor and homeowner settle on a price that covers what’s owed to the lender, is below full market price, and still leaves the homeowner with some cash as they exit the property. Very much a traditional home sale, which just happens to be on a property in the early stages of a foreclosure. But investors need to take a few extra steps before buying a pre-foreclosure home. First, they need to find out how much is actually owed to the lender before agreeing to a sale—there are often fees and fines that have accumulated during the default period and those will need to be covered by the sales amount. Second, investors should do a preliminary title search to see if there are any other encumbrances on the property, like a second mortgage, tax liens and mechanics liens – if the owner wasn’t making mortgage payments, there’s a good chance some other payments weren’t being made as well, and some of those past due amounts could be attached to the house. Finally, never buy a pre-foreclosure property without having a thorough property inspection done. Financially-distressed homeowners have been known to let maintenance slide (and sometimes do damage on purpose out of anger towards the lender), so diligence is critical. Auction properties probably represent the highest risk and highest potential returns of any of the foreclosure homes. Lenders sometimes offer these properties for the amount owed on the defaulted loan, plus fees and fines, in order to avoid having to take possession of the home. It’s rarely that an auction property is sold at or above full market value, since the bidders are almost always investors, and investors need to buy at a below-market price that allows them to make a profit. Property condition is probably the biggest risk with auction properties. There are no internal inspections available on these properties, since they’re occupied, and the residents aren’t generally inclined to be cooperative. Seasoned investors can get an idea about the interior by taking a look at the exterior, but there are often surprises and hidden issues to account for when estimating repair costs. There’s a risk of the occupant resisting the eviction order after the foreclosure sale, so it’s helpful to know how the local sheriff’s office handles those situations. Some investors set aside some “cash for keys,” where they offer the occupant a payment to entice them to leave without being physically removed (and hopefully without them damaging the property). A very unique risk when purchasing this type of property is the auction itself. More than a few investors have found themselves caught up in the excitement of a bidding war on a property they ABSOLUTELY MUST HAVE! And over-paying significantly. So, doing research on local property values, then having the discipline to set—and stick to—a “not-to-exceed” bid, is extremely important. And the note above about doing a preliminary title search is even more important for these properties than for pre-foreclosures. Plan to attend a few auctions before you bid at one, just to see how the process works, and familiarize

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Additional Investors Flock to Single Family Rental

Will diligence standards degrade based on competition and lack of inventory? by Jennifer McGuinness Currently, there are approximately 49 million rental units occupied in the United States of which, approximately 12 million are Single Family detached rental homes and 2.8 million are leased townhomes. Most of these units are existing homes on scattered lots versus new construction. To date, over 5 million homes have been converted from owner occupied properties to rentals. Based on this approximate 17 million units and their performance, there continues to be significant investor interest in the sector. Today, the market presents fundamentals that could lead investors to be uncertain about how investments could perform, but even in a time of uncertainty, Single Family Rental Investors continue to report record occupancy levels and rental growth. DBRS Morningstar recently reported that that rents in institutionally owned single-family rentals have grown more than 3% (annualized) in 2020. Invitation Homes as an example, reported renewal rent growth for pre-existing tenants to be up 3.3% in the second quarter of 2020 and new tenant lease growth up 5.5% in the same timeframe. Another driver of investor interest has been the Single-Family Rental REITS (Real Estate Investment Trusts), as they generally outperformed the broader REIT Market in 2020 by 23%, thus exceeding other real estate sectors by significant margins (i.e., exceeding multi-housing by 9%, office by 22% and shopping centers by 33%). Additional Investors and New Capital Away from occupancy and rent growth, the COVID pandemic and the subsequent stay-at-home orders have forced many to work from home and educate their children from home; hence, individuals and families are seeking more space. The two largest Single Family Rental Investment Trusts, Invitation Homes and American Homes 4 Rent, own a combined 135,000 units, which makes up less than 2% of the total units. According to Amherst Capital Management, there are more than 25 institutional landlords in the space today. Even historical investors like Blackstone, who sold off their remaining interest in Invitation Homes last year to JP Morgan Asset Management, have remained invested in the sector in some capacity, e.g., they still hold a minority stake in Tricon Residential. Additional capital has been raised and acquisitions have been made that indicate the investor appetite is strong in this sector. Examples of recent announcements include, a $375MM joint venture between Rockpoint Group and Invitation Homes, a $625MM joint venture between JP Morgan Asset Management and American Homes 4 Rent, and a $300MM fund raised by Brookfield Management, amongst others. On the acquisition front, Front Yard was initially to be acquired by Amherst Holdings for $2.3B but the parties terminated this agreement in May of 2020, opting instead for an equity investment by Amherst of 4.4MM shares of common stock, at the initial offering price of $12.50 ($55MM invested). They also provided a $20MM committed two year unsecured and committed financing facility to the company. Fast forward to October 2020, just 5 months later, when Pretium and Ares Management Corp. partnered to acquire Front Yard for $2.4B and initially for $13.50 a share but later revised this to $2.5B and $16.25 per share to its investors (a 63% premium over Front Yards closing share price). This acquisition just closed. Supply and Demand The big questions in my mind and I am sure many market participants are: Is there enough supply for the investment demand in this sector? When looking at the capital raised, if there is not enough supply, will the investment managers have to become too aggressive in their acquisition strategies to be able deploy their capital? If this should occur, does this mean that the due diligence of the properties (and/or of the tenants that reside in them) could be “relaxed” to be competitive and thus increase the risk profile of the investments driving a change in the stable cash flow curve the sector has historically experienced? And, if so, could this adjust the potential of continued capital appreciation that many investors are betting on today?  When looking at the market today, the biggest challenge I see initially is that demand does outweigh supply if you are solely looking at “for sale” real estate and mortgage rates. For example, the National Association of Realtors (“NAR”) reported that as of October of 2020, homes for sale were down 20% from October of 2019. It is important to note, however, that generally unsold inventory is on the market for 2.5 months whereas it was 3.9 months a year ago. Homebuyers are also “paying up” for real estate and there are many renters in cities seeking more space and now looking to live in the suburbs, due to both COVID and the fact that they are now at the age to acquire homes. The demand of the homebuyer, coupled with the demand of the Institutional investor, continues to drive home prices up in many markets. A good example is California, where NAR reports that the average price of a home increased more then 15% from 2019 to 2020. This, hand in hand with record low mortgage rates, has well positioned home buyers to make better purchase offers which could result in lower investment returns for investors, should they have to increase “buy prices” to acquire additional real estate. What the market is not looking at as closely however, is how many of the homebuilders have now either entered joint ventures with investors to “build for rent” communities or have started rental community divisions of their own. Single Family housing starts have increased by over $1.2 million in November per the Census Bureau which is more then a 25% increase from 2019. We have not seen this number of housing starts since before the financial crisis. While a lot of the new construction will go to owner occupants, this significant addition of new homes will begin to equalize the lack of supply for investors. Also, with the release of the COVD vaccine, if the country begins to truly open again, we believe we will see

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Risk Mitigation and Due Diligence in the Pandemic

What Investors Must Do to Ensure Favorable Outcomes and Future Earnings by Erika Garcia It is vital to fully understand the risks and rewards of real estate investment during our current economic decline caused by the coronavirus pandemic. Investing in real estate can provide the potential for a stable income stream and value appreciation, along with generous tax benefits. However, real estate investors must recognize that the pandemic may impact where people work, spend their money, and the location they choose to live. The pandemic has impacted investment property types differently. Commercial properties such as hotels, restaurants, gyms, etc., have taken the bulk of the hit. At the same time, residential properties are now more in demand than before the pandemic. Due to the coronavirus, renters in high-rise condominiums started looking toward renting single-family homes. This is clearly fueled by people wanting to remove themselves from the overly crowded markets and living conditions. The coronavirus has led society to yearn for more private outdoor spaces, distance between household members, and more room for all to enjoy and feel comfortable amidst this pandemic, thus creating an increase in demand for single-family rentals. Increased Demand for SFR Inventory Even though the SFR market was strong before the coronavirus pandemic, it seems the demand for inventory has only grown stronger. The increased demand for SFR’s persists due to the lack of new single-family rentals and a decrease in rental turnover. So, to meet demand, investors must remain steadfast in their due diligence efforts and avoid the allure of quick turnaround and shortsighted due diligence. While the need for standard procedures and reviews are necessary to ensure the right fit, price, and returns, today’s market, one fueled by the coronavirus pandemic, requires a due diligence process that may look and feel a bit different. Due diligence requires investors to look at: Strong Population in Migration Low Unemployment Rate Hybrid of Physical and Virtual Site Visits Comprehensive Inspections and Appraisals While Maintaining Mandated Health and Safety Precautions Alongside these tried-and-true guidelines, there are several other factors investors must look into and investigate to ensure favorable outcomes and future earnings. Today’s markets see potential buyers and renters moving all over the country for various reasons. The new “remote working” or “hybrid” work approach has changed people’s approach on managing their day-to-day lives. This, in turn, changes where people live and how they live. Factors such as unemployment, rentability, population density, demographics, and their purchase/rent buying power must be viewed through today’s lens and are crucial to making great real estate investments. These will be vital factors in the future of single-family rentals and other investment properties. As the pandemic continues to have a significant impact on the economy, real estate investors are challenged with navigating the effects of portfolio performance. It is increasingly essential to ensure that portfolios yield the most significant possible results by invigorating portfolios with newly vetted real estate investment and placing greater emphasis on the risks of those portfolios given the current landscape. Four main categories are crucial to risk mitigation. Diversification by Asset Type Diversification by Geography Avoidance of High Rent Asset Types Tax Benefits of Real Estate Investing Diversify by Asset Type Diversification of their real estate portfolios by asset type will help avoid the risk of over-concentration in one particular category of property. Diversify by Geography Diversification of their real estate portfolios across different cities and states will alleviate the risk of over-concentration in a particular market. Specifically, keeping an eye out for cities and states with lower unemployment levels. Avoid High Rent Asset Types The real estate market is continually changing. As we see today, any pandemic, economic circumstance, financial condition, and supply and demand will all impact the capability of profit of a real estate investment at a given time. Keeping an eye out on market rent and staying within the “affordable” range would be vital in avoiding high turnover or vacant properties. Tax Benefits of Real Estate Investing Real estate is one of the most tax-advantaged types of investment in the US. Deductions for depreciation are available to all investors. Moreover, some direct real estate investments may qualify for like-kind exchange treatment, known as 1031 Exchange. This can save investors up to 40% on their tax bills when net gains are on property sales. Now more than ever, investors must look for new and innovative ways to build diverse and profitable portfolios. Through the uncertainty of the coronavirus pandemic, the impact on different real estate asset types is unknown. It can be essential to enlist the services of professional real estate asset managers who can help develop defensive market strategies aimed at preserving cash flow while positioning assets and portfolios for future market opportunities. 

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