Investment Diversification Is Key

Property Type
Borrower Diversification

Invest in different loans across different borrowers. It can be easy to keep reinvesting in loans with the same borrower when they have a good track record. If that borrower only works on one property type (i.e. single-family homes) in one region (i.e. Houston, TX) this makes you vulnerable if something were to happen to that borrower. In most cases, a borrower will not default on one loan, they will default on all of their loans.

Property Type Diversification

Invest in different types of properties, do not limit yourself to strictly residential properties or strictly commercial properties. If a market correction in residential real estate occurs, your commercial real estate investments will continue earning interest for you as the residential investments work themselves out; and vice versa.

Geographical Diversification

Invest in real estate development across different regions and states. You can often achieve this diversification by investing across different borrowers. Some borrowers work in different states, and this greatly mitigates the risk of the borrower defaulting across all of their loans because they are not dependent on the success of one region's market.