Is your property portfolio sufficiently diversified?

It is common knowledge now that many people see their property investments as their pension fund of the future. While stock markets remain the most popular investment vehicle there is no doubt that property investment has increased in popularity in recent times. When looking at your own property portfolio do you consider diversification? Have you ever considered your risk profile?

Property portfolio

While there may have been a slight reduction in buy to let activity since the UK government introduced an array of additional charges, the buy to let market has still grown enormously over the last 30 years. As you begin to build up your buy to let portfolio it is very easy to become focused on one particular area of the country and one style of tenant. If these areas are performing well and your style of tenant is still looking for property then you could argue there is nothing to worry about. However, trends and times change and sometimes you need to consider diversification.

Stepping outside of your comfort zone

We all have our favourites, our areas of knowledge and our comfort zones whether this is in everyday life or your investment world. If you are looking to diversify then at some point you will likely need to step outside of your existing comfort zone and move to pastures new. Initially this will obviously involve in-depth research, monitoring of prices and working out how this new area of investment will fit with your existing assets. However, while it may be challenging in the early days you will feel the benefits of diversification in the long term.

Focus on the long-term

While we have mentioned on numerous occasions there is nothing wrong in taking a short-term profit, when looking at real estate investment you do need to focus on the longer term. Short-term capital appreciation is all good and well but long-term rental income and capital appreciation are the Holy Grail of investment. If you can build up a portfolio which is effectively self-financing then you can use your ever-growing equity to further expand your portfolio. Do not forget, while pure capital appreciation plays can do well in the right market, rental income will always offer a greater degree of support to any asset. You will be less at the beck and call of speculators!

Worldwide market

In years gone by diversification into overseas markets was the domain of the wealthy with access to contacts and advisers across the globe. The Internet has changed this, offering every investor access to markets around the world with in-depth research and the ability to find local advisers. While overseas diversification will not be for everybody, dependent upon the size of your property portfolio, it may be something to consider.

For those a little wary of direct investment in overseas real estate there are collective investment vehicles which allow you to invest in a portfolio of property assets run by a fund manager. This not only spreads the risk amongst an array of different assets but allows you to benefit from the fund management’s own contacts, experience and skills. At this point it is also worth mentioning the currency angle and the potential risk/reward as demonstrated by a near 20% reduction in the value of sterling against the dollar over the last 12 months. Always expect the unexpected in the world of finance!

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