What are the advantages of building a diverse property portfolio?

  • February 13, 2024
  • February 13, 2024
  • Shaz Nawaz
  • 4 min read

Firstly, with a diverse property portfolio, you can spread the risk of investment over multiple properties. If one property generates profits less than expected, greater chances are, other property will produce profits. The property that becomes troublesome and does not perform as expected, the sooner you sell it, the better. If a tenant is reluctant to renew the lease, and your property becomes empty for some time, the income from your other properties, will cover the cost of holding that property.

Diversifying property portfolio in industrial, residential, and commercial

Can you diversify even one type of property?

Properties in a portfolio can be diversified in different forms such as commercial, industrial, and residential properties can provide a cushion against downturns for any property. Even if you stick to only one type of property such as residential property, you can still diversify it by buying property in different areas and cities at different price levels ranging from luxury holiday properties and student houses.

Multiplying Income Streams

Diversification of your property portfolio gives you the luxury to multiply your income streams which helps you to achieve your financial goals. By investing in multiple properties, you are consistently and steadily, growing on your money which helps you to keep on diversifying your assets by buying properties at multiple locations. Once you found out worth profit-generating properties by conducting serious research and seeking guidance from property experts, invest in those properties at different locations and it will prove a steady flow of long-lasting income.

Purchase Property At Different Prices

It is not only the different locations and types of properties that appeal to more specific demographics, but properties with different prices also have the same effect. Typically, properties with higher price yields higher rents than low-priced or more affordable property. The property with a higher price is in good condition which naturally attracts more affluent tenants. At the same time, if you are planning to invest in a more expensive property, it is best to consider your options. For example, if you are considering buying an apartment priced at £ 500,000, instead of this one, you could purchase two – one at £200,000 and another at £300,000. It will benefit on two counts, reducing the risk of your portfolio and yielding a higher rental income by targeting two different sets of tenants.
By investing in a combination of two different properties that include affordable and more expensive, these two properties will maximize your portfolio through capital growth. But these profitable results are conditioned to the location of the property. that’s why give special attention to the location of the property.

Reduce risk

As we know, the primary reason for diversifying property portfolios is to reduce the market volatility risk associated with traditional investments as mu as possible. By investing in international markets and alternative assets, you may reduce the chance of all your investment being impacted by the same shocks of the market. while on the other hand, if you don’t diversify your portfolios, it means you are putting all your eggs in one basket.

 Smooth volatility

Like any market, the property market is also volatile. It is prone to changes and shockwaves that can have impacts on different assets all at once. However, when you invest in the international market or alternative assets that are separate from the public market and are not affected by the same shockwaves, in this way, you can help to smooth out this volatility in your own portfolio.

Additional Sources of Return

Finally, diversifying your portfolio does not mean, you only have alternative investments to mitigate risks, but it offers you more investment to ensure your additional sources of return.

Why diversification of property is important?

For any expat or foreign national investor, diversification of the property portfolio is an important practice for any such number who owns a number of properties in the UK. Shortly speaking, diversification is a process of spreading your money in the shape of investing at different places to reduce the risk of the overall investment portfolio.

While UK expat and foreign national investors could diversify their portfolio by investing in a different sector – for example, the commercial property sector – we often advise our clients to focus mainly on the residential sector, as it is a very stable sector for investment’ says Stuart Marshall. ‘The reason for this is that supply is always constrained, as the number of people outnumbers the number of properties available, while demand is always strong, as everyone needs somewhere to live. For the purpose of diversifying an investment property portfolio, there is enough diversification to be had within the residential sector. This comes from a range of sub-sectors, including private rental housing, social housing, and student accommodation. This can also come from the location of the investment, the type of property, or the type of tenant.

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