Making sure you have a bit of diversity in your property portfolio is one of the best tips for giving yourself the best chance of finding success.
Diversity in a property portfolio is one of the very best ways to improve your chances of success, especially as a newcomer to the UK rental market. As strong as the property sector as a whole is, there’s always going to be times when activity and returns hit troughs as well as peaks, and it’s vital as an investor that you are both protected against the former, and able to take advantage of the latter, whenever they occur.
The best way to do this is to make sure your portfolio is not too stacked in favour of one type of property. If you have all your eggs in one basket and all of your assets are too similar, then any blip in that particular niche could leave you out of pocket. At the same time, if another type of property hits a purple patch, you could well be missing out.
If you have interests in a number of different assets, however, you are best placed to mitigate against risk and win from any big climbs. You may not see huge one-off windfalls, but you will see your investment rise in value when things are going well for some assets, while any falls in value will be cushioned by your other assets, lowering the risk of your entire portfolio as one.
Here, London-based property specialist Experience Invest reviews some of the best ways to diversify a property portfolio to make sure you are best placed to build a stable, long-lasting and profitable investment.
The easiest, and most common, way to diversify your portfolio is to look at spending on a range of different types of property. This way, you are best placed to take advantage of whichever happens to rise in value, and returns, first.
For years, property investors were making the most of the buy-to-let boom, looking to make the most of the growing demand for new rental properties across the UK. And in more recent times, more money (over £5 billion per year) has been invested in student accommodation than any other asset class in property, as demand for new non-traditional student housing grows.
For a diverse portfolio, however, it can be a good idea to put money into both of these areas at once. They might seem similar, but in reality, they are worlds apart, and to invest in only one could mean missing out on growth in the other. There’s more than five million people renting at the moment, and a shortage of rented properties to meet their needs, while the growing number of overseas students coming to study in the UK means a greater need for new style accommodation that universities just can’t provide.
By putting money into both of these assets, investors are able to take advantage of the strong growth in both, without potentially missing out if one or the other should happen to really take off.
Another great way to diversify a property portfolio is to look at not just what you are investing in, but where as well. The UK has a great property market on the whole, but different areas of the country perform in very different ways. But by investing diversely, you will be well placed to ride the waves of each area and keep making a good profit.
One great tip for geographical diversity as an investor is to try to put your money into both a safe haven, and a potential hotspot at the same time. This allows you to mitigate against risk with the former by putting money somewhere you know will make a decent level of profit, while also gambling on somewhere that could be about to take off, potentially making a huge profit if it all goes well.
For example, you could invest in rented property in cities like Liverpool, Leeds and Manchester, which has seen a steady stream of both new business and property demand over the last few years, and gives a stable income as a mature market. And at the same time, you might want to put your money into accommodation in Newcastle. The north-east is currently enjoying the best rental returns in the UK, and with demand set to grow in a big way soon, it could well become one of the hottest areas of the property market in the next few years.
It can also be a very good idea to look at diversifying what you own in property assets in terms of value. It’s tempting to always invest as much money as you can into stock when you expect strong returns, but spreading it across a number of different assets, all of which will be performing differently, can be a great way to buy.
High value homes are great to invest in when you are looking to buy in cities that are seeing an influx of high flyers from London, because you will know that the income you get from the rent will be very strong, but these won’t work everywhere. It’s all about knowing your target audience.
Even when you are investing in student housing, it can be a good idea to take a diverse approach in terms of value. Foreign students tend to spend big on their student houses when they come to the UK, while Brits will look for quality at an affordable price. By looking to meet demand in both of these price ranges, you can make the most of the growing appetite for private rents from both demographics, giving you the best possible return while lowering risk.
Diversity in property investment is all about making sure you spread the risk. For new investors, it’s a fantastic way to give yourself peace of mind, knowing that you’re not gambling all your money on one asset that could go wrong. But it also gives you the chance to make the most of climbing returns across a range of assets, giving you the best chance of a greater overall return.