Will a diversified property portfolio mean greater success?

16 04 2018

A diverse property portfolio makes sound commercial sense. As with all investments, by diversifying your assets you minimise risk. If one investment performs poorly, then you have your other investments to fall back on. When it comes to property, this means diversifying by asset class and location. Once you do that, you’re likely to see greater success, and returns for many years to come.

Diversified Assets

There are different assets you may want to invest in within the property sector. Some landlords and investors choose one asset class, such as flats for students or larger properties for families. But your best bet is to diversify across asset classes to spread the risk.  

The major benefit here is that any changes to the market will have a more diluted effect on your investment portfolio. We can look at a recent example as proof. Due to the recent changes in stamp duty liabilities it may be possible for more young renters to buy instead of rent. This could mean a decrease in the demand of flats. But if your assets are diverse, then the decrease in demand won’t affect you as much.

Geographic Location

As well as diversifying your portfolio by asset class you may want to diversify by geographic location. Investing in different locations, cities and regions also spreads the risk. When choosing a location in which to invest you should consider its growth over the past ten years, whether the council is willing to invest in infrastructure, and whether it’s a place where people want to live in terms of schools, amenities and so on.  

London is clearly rich in infrastructure and has a range of diverse areas in which to live, making it an excellent choice for investment. You can use the ONS website to research preferred areas within London. For instance, you can see whether there is demand for a certain asset class based on the growth of an age group in that area.

Financial Success

Having a diverse portfolio of rental properties will allow you to see returns for years to come. It may take some time for your investment and costs (including renovation and maintenance) to be recouped. However, it’s well worth the wait as the returns will be greater than any short-term investment. 

Each month you will have a positive cash flow while the tenant pays the mortgage. They are providing you with equity and you are earning money on top of that. The best part is that these financial benefits are secure as your portfolio is diverse, making you less susceptible to changes in the market.

Risks

You must make sure you do your research before making any investment to minimise the risks. Don’t forget to take an active role in your investment. You may not want to sit on your properties and wait for the returns in the long-term. So, keep track of your rental yields against capital gains. 

For more information on investing in properties in West Kensington, Barons Court and the W14 area or to find out about our property lettings services, get in touch with our team of experts.  

 

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Huw

Huw

After gaining years of varied experiences in Estate Agency, I joined Shaws in 2009 and haven’t looked back. Working in such a healthy team environment, surrounded by talented individuals in this beautiful area of West London - I feel truly privileged to hold the position of Managing Director at Shaws Kensington.