Diversifying Your Property Porfolio and Investments

Whether you are just starting out as an investor in property or already have a substantial portfolio it is essential to consider diversification of the type of property investment you hold and to consider the relevant risks and returns for each.

Some investments are potential capital gain investments only and therefore speculative, some are investments producing a healthy yield but without necessarily intending to gain in the capital value. Ideally though your investments should have both attributes as a high yield on a property going down in value is not a particularly sound proposition.

Off Plan Property Investments

Off plan residential investments are very popular and have recently been producing capital gain returns in excess of 100% per year based upon the 15% typical deposit required to buy the property. This is both due to the bulk-buying discounts on properties not yet built available through property investment advisors and the fast price rises seen in the past few years. However with price rises slowing it pays to be much more careful on these types of investments in the future, particularly if the property rent forecast barely covers the mortgage payments making the purchase a speculation on future prices rather than a true investment. Always buy through reputable advisors obtaining genuine discounts and with well researched rental forecasts.

Many new investors have concentrated entirely off plan and if purchased carefully this is an important factor of an active portfolio as it can provide short term trading income if successful. It should however be balanced with one or many of the other property investments available.

Refurbishment Rentals

A faster way to get a property bought and rented is to buy and refurbish an existing property however with recent price increases established landlords confirm these are getting harder to find in quality areas. In some less desirable areas property is still cheap but with this comes the likelihood of lower quality tenants and hence riskier returns.

Commercial Property

This offers the investor an opportunity to achieve usually much higher yields than usually possible today in the residential sector, combined with a stronger tenant rent commitment and longer leases. Commercial property can offer yields from 6 to 16% plus depending on the quality of the building and tenant. Funding is available up to 80% of the property price for new build and the yield can easily cover a repayment mortgage:- a very important piece of protection if price rises were to slow in the next few years as it ensures that your equity increases in the property at the expense of your tenant not just as a result of property inflation. An added bonus is that commercial properties attract taper relief on capital gains producing only a 10% tax rate after two years.

Land Investments

Land can offer some good speculative returns on a long term basis. Land without planning permission is significantly cheaper than land with planning permission whether for residential or commercial use. For the speculative investor careful selection of land in urban infill areas, industrial estate expansion zones and green belt land likely to be land locked by future highways expansion can all offer exciting but probably long term gains.

Holiday Lets – UK and Overseas

This is another property investment which is usually treated as a business asset and hence attracts taper relief on capital gains again. Holiday lets in the UK are getting more difficult to make profitable with the recent price gains seen in this country however overseas it is still possible to achieve up to a 10% yield on investment from rental income. Considering mortgages in overseas countries are well under 5% it is very achievable to operate a 12 to 15 year repayment mortgage and own the property outright at the expense of the tenant after this period. You are relying on a different rental income type to normal residential rental lets as you are taking money from peoples holiday budget instead. Popular countries where buy to let abroad works well include Spain , France and the US ( Florida ) where demand and rentals are high..

Property Investment Funds

Finally if all this diversification sounds a bit rich for the size of funds you have available but you still have a wish to spread your investments and risks across a number of sectors then property investment funds may be for you. For a small investment for say 30,000 pounds upwards you may invest in a fund that will pool your investment with other investors, add some gearing with bank funding and then invest the proceeds in a spread of investments. This type of fund works in much the same way as a unit trust but with the asset that is being invested in being property not shares. Investor demand for these new type of property funds is proving substantial as the responsibility for the investor to make all the decisions and to manage the portfolio is moved to professional managers and the diversification can be much better than that which a single investor could normally achieve with limited funds.

Perhaps Property Investment Funds are the way forwards for many investors who understand the need for diversification and do not have the funds or the time to achieve it. Diversification reduces risks and exposes the investor to a wider range of market places and potential returns - a sound and profitable solution. See information on the latest property investment funds here

See all of our other property investment articles here.