How to diversify like a property expert
‘Don’t put all your eggs in one basket’. The old cliché still rings true, and it’s what diversification is all about: the ability to reduce how much risk you take on.
Investing in property used to require putting a great number of eggs into one basket – but we’ve cracked the problem at Property Partner. You can now diversify into as many properties as you like, all at the click of a button. It’s now even easier with the Bid Engine, which allows you to place bids on as many Resale properties as you like. Read on to find out how and why you should diversify, or take a look at the diversification opportunities available in our marketplace:
Why diversify? And why into property?
Diversification is a cornerstone of any great investment portfolio. Asset classes perform in different ways, in different cycles, and represent different levels of risk. Residential property acts as a great diversifier because the drivers of supply and demand aren’t closely correlated to the performance cycles of other assets, and it can act as a strong hedge against wider volatility in the market. The same goes for Purpose-Built Student Accommodation, where rental growth has continued at 3-4% per year, even during the global financial crisis. Both have proven over many years to be a relatively low risk investment that offers strong returns.
It’s also essential to diversify within an asset class, and before Property Partner, this wasn’t possible for most people. Now that you’re free to diversify, here are the five ways you should consider diversification within property:
Residential property is already fairly low risk. An investment in property is backed by a real asset: bricks, mortar and land. Still, the more properties you spread your wealth across, the more your risk is reduced, and your income stream becomes more predictable. For example, if you buy a house in South London and the roof has a major leak, as the sole owner, you are fully exposed to the cost. If only a small fraction of your funds are invested in that property, it minimises your exposure to unexpected costs. As professional property investors, Property Partner also make allowances for problems like this, which is why we have never underpaid a dividend to date.
Our Director of Property says:
“I’d recommend diversifying into a minimum of 10 properties for residential. If some of your property is geared, perhaps 20, as you’ve amplified your risk. The beauty of Property Partner is that we allow everyone to achieve that level of diversification, and without any of the hassle of managing all those properties.”
Choosing a mix of properties in different regions will balance your risk profile, and also your balance of income vs capital growth. London had generally outperformed the rest of the UK in terms of capital growth, however, properties outside of London tend to have a more attractive rental yield, as prices are less inflated.
If you have a single property and your tenant leaves, or falls into arrears – not only are you without income for a number of months – you still have all the costs to pay: mortgage, maintenance, council tax. The more tenants you have, the lower this risk, and the more reliable your income stream. Of course, more tenants means more hassle – but with Property Partner, you don’t have to worry about that. We handle all aspects of property management – including finding the tenants and making allowances for voids.
Mortgaging (or gearing) a property increases both risk and potential rewards, because you’re more exposed to property price movements. Gearing also enhances yield, so long as your rental income is higher than the interest rate you pay. Depending on your risk profile, you may wish to include ungeared properties in your profile as well as geared ones. Find out more about geared property here.
There are different kinds of property investment – and again – each come with their own risks and rewards. New infrastructure or regeneration projects can transform an area; rising prices in a neighbourhood can see the next one along benefit in later years, and the same with commuter belt areas as more people are pushed out of London. Similarly, Purpose-Built Student Accommodation is affected by different factors, and offers a different mix of total return. Some property investments are higher-yielding, some could see a lot of growth – and it is important to build different types of investments into your portfolio.
Spread your risk and diversify your portfolio now – take a look at the many properties available on our marketplace, or else, set up Auto-invest and diversify effortlessly: