After the turbulence of 2020, we’ve seen more than enough evidence of property’s resilience, with the asset flourishing during three national lockdowns, extensive tier systems and the ripple effects of stringent social distancing guidelines. In comparison to alternative industries, the property market has fared well, with the likes of cryptocurrency and the stock market bearing the brunt of the economic fallout from Coronavirus.
That said, even now we’re seeing investors postponing their plans to diversify in the coming months.
2021 holds many possibilities and no-one can be sure what a post-Covid society looks like. Will the interest rate go negative? What could a stamp duty holiday extension mean for the market? While these factors will inevitably contribute to the economic forecast, the property market has simultaneously sustained Brexit, a global pandemic and an ongoing recession. With this resilience in mind, why wait to diversify your property portfolio?
Property developer, SevenCapital, offers three ways to diversify your property portfolio in 2021:
Invest in Different Locations
With your first property investment, you may be inclined to pick something closer to home, but when scaling your assets, having properties dotted in different areas could offer a wealth of opportunities.
The most important metric for Buy-to-Let investors to consider, rental yield will determine how much you stand to make when your monthly rental income is measured against the overall value of your property. Although the UK currently has an average rental yield of 3.53%, this varies significantly between regions, with London averaging just 2.83%, while Birmingham has topped 4.25%. As a result, diversifying your property portfolio with different locations not only allows you to benefit from varying rates of return, but also reduces the impact of any fluctuations on your investments.
Much like rental yields, property price growth is another benefit of expanding your portfolio across different areas. We’ve seen pretty consistent increases in UK property prices over the last ten years, but some areas have grown more than others. In the likes of Edinburgh and Bristol, property prices have soared, simultaneously pushing rental prices and increasing the value of your property.
But if you’re looking for a unique investment opportunity, emerging locations tend to offer new property at affordable prices, with the enormous potential for growth. Consider investing in locations that are undergoing regeneration, such as Slough, which is in the midst of a £3 billion redevelopment scheme. These redevelopments work to revitalise the wider area and subsequently, push the demand for property, with Slough rental prices expected to endure 8% growth in just four years.
Invest in a Variety of Property Types
Whether you choose to invest in different property types in a single location, or opt for varied assets in multiple areas, there is a certain amount of flexibility to diversifying your property portfolio.
Having a well-balanced selection of both houses and apartments, for example, often provides Buy-to-Let investors with an increased level of security in their property portfolio by minimising the wider impacts of evolving tenant demands. As we have seen over the past 12 months, the priorities of tenants can change rapidly, especially with the shift from micro-living in the capital to more spacious homes in commuter towns. With 46% of homes in Slough now let to those leaving the capital, this shift likely remains a concern amongst investors with London property.
Diversification can also be achieved in the earlier stages of your journey, by choosing between completed or off-plan property. Both property types offer different benefits and drawbacks, but complement one another as part of a single portfolio. While completed property allows you to begin receiving a passive income sooner rather than later, off-plan property can offer many monetary advantages. More often than not, off-plan property gives investors the opportunity to purchase below market value, before the property undergoes natural capital growth and reaches its full potential.
A diverse portfolio can be achieved multiple ways, but having a balance of different property types, whether this is houses and apartments, or completed and off-plan property, can maximise your returns while reducing the risk of your portfolio.
Invest in Properties at Different Price Points
Investing in property at different price points signifies multiple things: varying standards, rental costs and rates of returns. While this depends on your budget, if you’re torn between investing in one more luxurious property at £500,000, or two high quality apartments at say, £200,000 and £300,000, the latter would offer more flexibility and security. Should you decide to invest elsewhere later down the line, or require more stretch in your finances, you still have the option to sell a property and keep one as an investment asset.
These higher price points also translate into higher rental costs, to generate a profit and make your investment worthwhile. But for tenants, affordability will always remain a priority, and with an increasingly competitive market, diversifying with this consideration in mind will allow you to grow your portfolio with a balanced selection of properties.
By having a portfolio made up of properties with different values, this also offers increased opportunities for growth in prices, with more affordable properties having the potential to rise in value over a long-term basis, providing they’re in a good location.
While the turbulence of 2020 may have left you hesitant about diversifying your property portfolio in the coming months, the continued growth of the market has proven its resilience as an investment asset. A diverse portfolio is achievable via numerous avenues, from different locations, property types and price points, offering investors a greater passive income and lower-risk portfolio over the long-term.