The benefits of diversifying your property portfolio

Plus, tips on how to do this...

Diversification can help you keep hold of more of your money – and assets. Find out all you need to know...

Diversifying your property portfolio is a wise choice. If you invested every single penny into the stock market and it crashed – what would happen?

You’d lose your investments, as well as what you’d gained in interest. The same could happen with property. Although property is known as one of the safer investments to choose from, it’s similarly smart to spread risk across your portfolio.

Diversifying by location

One of the easiest and simplest ways to diversify your portfolio is by investing in different locations to the ones you’re used to or are comfortable with. Often the temptation for landlords is to ‘stick with what you know’ and although this is sensible in some cases, you could be missing out on opportunities to better protect your wealth and maximise profit.

Local economies are delicate and in a worst-case scenario, the closing down of a major employer in the region can have a knock-on effect that could leave you vulnerable. If your tenants and prospective tenants find themselves without income all at once it could spell disaster. The best form of protection is to spread your investments across various locations to minimise this type of risk. If you’re unsure where the best place to buy a new property is, seek the expert advice of a local agent. 

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These properties offer incredible value for money and high yield.

Supply and demand

Something else you need to consider along with the above-mentioned location is the supply and demand of the property type you’re looking to invest in. If an area is oversaturated with HMOs and they’re available to let at very competitive rates - is it worth you investing in one? Maybe, maybe not. We can’t stress enough the importance of research and understanding the market you’re investing in.

Diversifying by demographic

Another way to protect your portfolio is to purchase properties that can cater to different markets. For many landlords, the temptation may be to buy a row of terraced houses or a number of apartments in the same building - the appeal being that it cuts down on potential administration issues. 

A more astute approach is to consider the different types of people that you could potentially let to (families, students, young professionals, retirees) as varying the demographics of your tenant base.

Consider the different types of homes in the marketplace and what they can offer your tenants; the concerns of families, local schools, for example, will not be the same as students who might be more interested in their proximity to a vibrant nightlife. Young professionals may be drawn to an area with a fast broadband connection whereas retirees may show preference to communal spaces where they can meet with friends and family. By varying your offerings and attracting different types of people, your portfolio will become better protected. 

Factor in risk vs potential

When considering your next acquisition, look to balance the amount of risk and long term potential with your other properties. For example, if you own a house that has steady capital growth and reliable tenants in an affluent area you could be in a good position to take a risk with your next investment. This could be in a new residential area or a seasonal holiday home that could potentially pay huge dividends but is also subject to many external factors. 

However, if your current units are more vulnerable to market changes and offer little security short term, you should consider a safe bet that will give you a steady income for the long term. Of course, it’s important in any business to chance your hand from time to time and there’s no such thing as a dead cert, but by balancing your portfolio with the potential outcome it’s possible to offset risk in a sensible way. 

Should you be diversifying your portfolio in 2021?

We’re living through unusual times and there has been a lot of scepticism as to whether you should invest in property this year. But does that mean you should avoid diversifying your portfolio in 2021? 

Absolutely not. You know what we think. There’s plenty of opportunity out there. In fact, the UK property market is one of the most robust and stable markets to invest in, globally. Property is still considered one of the best asset classes of all time. If you’re looking for a new investment, here’s 7 of the best buy to let hotspots for investors in 2021. We’ve also recently discussed how to increase your yield this year which you may find helpful too.

Alternatively, if you have a property and you’d like to know how much you could make from it, have you had an expert valuation yet? That would be your next step…

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