Diversity plays a crucial role in a property investment portfolio and how it may influence your prospects within the property market. One of the major reasons why diversifying portfolios is such a sensible and appealing idea is to help mitigate risk exposure. You’ve heard of the phrase, ‘don’t put all your eggs in one basket’? Well, this is true for property investment too. Unpicking this concept basically means if you spread your investments over multiple assets and type of property investment, you can minimize risk and reap the benefits of your diversified portfolio.
Aiming to reduce risk, diversification is one of the primary practices to ensure this. It also seeks to minimize the total impact of bad assets as it is more likely you can counterbalance the loss with more successful investments.
For rental properties, one of the biggest risks is the loss of income. This can be a result of a variety of circumstances, one being an unfilled vacancy leading to a longer void period. Typically, this can occur when a property, usually residential, fails to attract new tenants after the previous ones have moved. This loss in income could have a detrimental impact on your property investment portfolio.
To help combat this possible risk, multifamily properties may be a compelling proposition for investors. Not only do they produce a larger sum of cash flow compared to single family rented properties, but they essential carry less risk as they can generate a larger pool of tenants, which can alleviate the total loss during void periods.
One way to diversify your property portfolio is to invest in different locations, not just different types of property. Protecting yourself against peaks and troughs in the property market can be easily achieved by meeting the ever-changing demands and spreading your investments geographically. Of course, there are always going to be cities with higher demand compared to others, these are likely to be cities that are experiencing high levels of growth. Although these locations are fruitful, they are often associated with higher purchase costs which may discourage investors from purchasing these areas in large quantity.
Areas that are deemed less desirable are likely to experience slower growth. However, they are usually be found at lower price points which is attractive for investors wishing to purchase a large number of units or properties.
Although the UK property market overall provides robust returns with potential for capital appreciation, different areas of the country can perform in different ways. By investing diversely, it is far easier to keep making profits. For example, RW Invest property investment specialists offer properties in cities like Liverpool and Manchester which have seen a constant stream of both new businesses, a wealth of established independents and a strong tenant demand, providing a stable income in a prosperous market. This would potentially balance out losses that may be experienced in London as the capital has recently experienced a decline in the property market.
Diversity in a property portfolio is one of the most secure ways to heighten your chances of success. The property welcomes slight instability, but not to the extent it will become dramatically detrimental. It is important to carry out relevant due diligence to ensure you are never out of pocket or dipping into your profits to keep a current investment afloat.
REITs (real estate investment trusts) have been popular in the global market. It is a highly liquid method that allows easy exit to investors. The lower risk helps investors gain higher income and exposure in the real estate market. REITs are companies that finance or own real estate. It’s no secret; the domestic property market is rising again and if you aren’t fully convinced about the growth of your local real estate, it is an attractive investment vehicle which can be used to target national and global real estate opportunities. Some companies offer more stability and higher returns just like how the housing market has always been.
Real estate crowdfunding is a new concept and it is gaining popularity worldwide. A large number of investors are looking to diversify their property portfolio with reliable and stable assets. Real estate crowdfunding allows you to diversify your property portfolio, as it lets you invest directly in assets that were previously limited to institutions. Now you can directly invest in stable tangible assets. This trend will continue to grow, but in the real estate space, it is important to move your hard-earned money to the right place. Most of the crowdfunding platforms are backed by tech companies, so you must do your research in order to choose the deals that are operating in a transparent environment and are backed by experienced professionals.
If an individual wants to diversify his property portfolio, the commercial real estate can be a good idea to start with. Unlike REITs and other unpredictable assets from the public market where stock prices rule the pricing structure, this type of real estate investment is comparatively safe. The holding period for this real estate investment is somewhere between two to five years, but it is actually safe from the unpredictability and volatility the public market faces.
Fix up and resell can also be a good strategy if you are an expert. The expertise you need here is the hardest part of the learning curve, but if you are able to make it through the process, there’s a good chance you can earn higher returns on your investment. Look for houses that are available at a lower price. You can easily find properties that need a little renovation. The tricky part here is that you must know what you’re buying and how much you’ll need to spend to bring the property back in a good shape.
If you’re able to do that, renovate the unit and sell it faster. The risk of flipping is that if you wait for a long time, you will make less money because, at the same time, you will be investing your time and money without bringing any extra income from the investment.
Make this year yours by restructuring your real estate portfolio. Consider how you can diversify your property portfolio and try new ideas in the constantly evolving real estate markets.