Three top tips for diversifying your property portfolio
Beginning your property portfolio can often seem overwhelming but most investors would agree that scaling a portfolio – and investing more of your hard-earned money – whilst exciting, can be a much more daunting prospect.
There are many more considerations that come with diversifying a property portfolio such as different locations, increased responsibilities, and the importance of investing in assets that complement one another. Despite these growing considerations, the opportunities for a greater passive income obviously also increase when scaling your property portfolio.
It’s understandable that some investors may be cautious about diversifying in the wake of Brexit and the ongoing pandemic and yet the past performance of the market – especially during external challenges – offers plenty of reasons to remain confident when scaling your investments.
Property developer, SevenCapital, shares their three top tips for diversifying your property portfolio in 2021 and beyond.
Consider your Portfolio
As well as being the first step towards scaling your investments, considering your existing portfolio is arguably one of the most important components. Having a well-balanced selection of properties will reduce the risk of your assets, minimising the impact of evolving tenant demands and allowing you to benefit from varying rental yields.
While tenant priorities are always evolving, two cornerstones will remain – affordability and security. Tenants always want value for money and investors need to be sure of consistent, secure tenant demand. That said, even these priorities will be impacted by societal changes, as we have seen with Coronavirus. The global pandemic has demonstrated how rapidly tenant demands can fluctuate, with micro-living in city apartments reducing in popularity, while more spacious homes in greener environments grow in desirability.
As a result, 46% of London leavers are allegedly heading for commuter towns – such as Slough – to achieve a healthier balance of work and living. This highlights how a diverse portfolio of smaller city apartments and more spacious homes outside of the capital, for example, could mitigate the repercussions of these evolving tenant demands.
This is also a clear benefit of investing in numerous locations. Fluctuations in tenant priorities drive demand for specific property and subsequently, can impact the rental yields for different areas. This can be seen by comparing London’s 2.83% rental yield with Slough’s 3.95%, with the demand for more affordable living and transport links influencing these metrics amongst other factors.
Don’t ‘Time the Market’
The age old question amongst property investors remains, is it time in the market or timing the market? Thought to be the key to financial success, this debate is becoming increasingly more pressing as we continue to navigate a global pandemic and a post-Brexit Britain.
If 2020 has taught us anything, it’s that there is rarely an ‘ideal’ landscape to invest or diversify your property portfolio, and instead, the focus should be on the right time for you. From the political uncertainty of the Brexit transition period, to numerous national lockdowns and a stagnating economy, the adversity of 2020 could have pushed the property market to breaking point.
However, the industry demonstrated its resilience, making history with climbing property prices and a swelling rental market. Despite the detrimental impacts of Covid-19, the average property price reached record breaking highs of £250k, while the rental market grew by over 5%. Increasing nearly £100k in ten years, this average property price contradicts timing the market, whilst exaggerating the benefits of a long-term investment.
The reliability of property as an investment asset diminishes the necessity of ‘timing the market’, with its past performance emphasising its ability to sustain turbulent times and offer investors consistent competitive rates of return, provided they give the investment time to generate returns. Subsequently, the question you should be asking yourself is not, “is it the right market to scale my property portfolio?”, but instead, “Am I ready to diversify my property portfolio over the long-term?”.
Utilise a Letting Agency
The responsibility of managing multiple properties at once, alongside your usual workload, may be deterring you from diversifying your property portfolio. This is where having a trusted partner is vital. A good letting agency can provide you with a hassle-free property portfolio experience and still deliver a substantial passive income.
Choosing a reputable letting agency that provides a complete management service can be the most beneficial option for landlords, with the agency taking responsibility for everything, from sourcing and background checking tenants, to conducting inspections and handling emergency issues. In doing so, landlords can benefit from the monetary advantages of a diverse property portfolio, without compromising their day-to-day workload.
When diversifying your property portfolio, research is key. Being aware of the changes in local markets, such as new developments and schemes, can significantly impact the potential growth of regions and towns. Letting agents can offer their expert knowledge on this topic, to provide you with an understanding of any changes in the local market that could hinder or advance your property portfolio.
Complementing their awareness of local markets, letting agents can also offer insight on up to date rental yields across the UK. As a metric that could determine the success of your property portfolio, opting for competitive rental yields is key to diversifying your investments. But with numerous sources often providing varying rental yields for a single location, seeking advice from your letting agent can make diversifying your property portfolio a simple, yet effective, process.