Diversification Through Single Asset versus Multi Asset Investments in Real Estate

by | Aug 30, 2022

If you’ve started to consider passive investing through the real estate syndication model as an option to help diversify your retirement or investment portfolio, it’s important to know the difference between single asset and multi asset funds in this space. In this brief article, I’ll share the high-level pros and cons of each type to help educate you on your options so you can make an informed decision with your hard-earned investment dollars.

Single Asset Real Estate Investments

By no surprise, single asset real estate investments are limited to one specific property. It could be a single-family home, a mobile home community, a 250-unit apartment complex, or even a strip center in the middle of Kansas. There are many different pros and cons of this strategy, and I’ll outline a few of them below:

Pros

• Pre vetted properties where the due diligence has already been completed and results and a proforma are provided prior to your investment

• Ability to invest in multiple single asset investments to offer similar diversification benefits as the multi-asset model

• Potential for “hitting it out of the park” returns on an amazing investment that far exceed the proforma returns

• Hold times are generally shorter as the exit strategy is based on only one asset

Cons

• Requires larger investment dollars to gain diversification across multiple assets, asset classes and/or geographies

• Timelines can be very urgent as there are usually limited investment spots available and good investments can fill up very fast

Multi Asset Real Estate Investments

Once again, it’s not difficult to figure out that multi asset real estate investments include more than one specific property. What might not be as apparent, are the pros and cons for this type of investment so I’ll outline some of those below:

Pros

• Spread your risk across different assets, asset classes, and geographies in one investment. These opportunities usually focus on one asset class, but it is normal to see various markets included in one investment

• Returns are more consistent and can mirror the industry norms as the investment outliers average out to create more steady and predictable returns

• Investment offering timelines are usually longer on the front end and offer multiple entry points for the investor since the investment firm will likely accept investors throughout their acquisition period of all the assets in the investment

• Requires less money to invest in multiple properties as compared to investing the minimum investment in multiple properties

Cons

• Since the specific assets have not usually been identified, you are not able to vet the specific deals against your criteria. You are putting more trust in the operator to make sure they choose assets that match the criteria set for the investment

• Multi asset investments usually have longer hold times as the operator needs to acquire, execute their business plan, and exit on multiple properties before the investment can pay their full returns

• Reporting and tax documentation can be more complicated as there are multiple assets likely in different states which have different tax requirements

Be sure you understand the differences before you invest, but both options can provide amazing returns that will help you decrease your dependance on your W2 income as well as your stock market holdings.

Please reach out if you would like to discuss this further or if you’d like to discuss passive investing through Impact Equity.

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