Property investment is one of the most popular and accessible ways to put money away for the future in the 21st century, mainly thanks to its arrival in recent years in the mainstream.
Gone are the days of the typical property investor being some rich high roller with money to burn, replaced instead with a market that allows people a diverse and varied way to invest their money and make their funds work for them.
One of the main reasons this has become a reality is that there are so many options available to people who want to get a piece of the property pie. Whereas years ago the main option for investors was to purchase rental properties alone, we now have student homes, office blocks, care homes and a range of other assets to consider.
Investment tactics can also come in different forms. No longer is it the simple case of investing in a single property. Now, there are ways to spread your money, however small your fund is, and make sure it can work for you, which is particularly beneficial to market newcomers.
We take a look at the ways the property market has developed to allow people the option to invest in ways they never had before.
Ways to diversify a property investment portfolio in the modern age
As recently as 20 years ago, if you had around quarter of a million pounds to spend on property investments, your best bet would be to buy a couple of flats that you could let to tenants, bringing in rental money that delivered decent yields, but was ever vulnerable to the elements of the market. Should the rental sector have seen any sort of decline, for example, those who put large amounts of money in could quickly see their returns plummet.
For this reason, variety has become king for the savvy investor, and now more than ever before, people will be able to diversify their portfolios with a smaller amount of money.
While in the past people were generally on their own and could only invest in full properties, there are now more management companies and developers around that can allow you to put smaller amounts into certain assets to spread your money around.
For example, if you want to invest in standard buy-to-let homes as well as student properties, you might have previously been forced to choose between them. However, it’s now possible to buy shares in both with some developers. You’re not buying a whole property – just a share in one – and your returns are dictated by the percentage you own.
Sure, you may not see the same hugely positive benefits of the average six to eight per cent rental yields that you would if you owned the whole property, but it’s a good way to be able to spread your investment around.
Owning shares in houses in multiple occupancy (HMO), student rental properties and care homes, for example, can give you a diverse portfolio that can work for you, and all for far less than may be expected.
So just why are so many property investors now looking to spread their bets across the market? We take a look at some of the benefits of diversifying your property portfolio.
The benefits of diversifying
As the old adage goes, don’t put all your eggs in one basket. Nowhere in the world of investment is this truer than in the UK’s property sector. But why is it so important to ensure as an investor that you are buying shares in a range of asset classes?
The simple answer is that it both protects you against drops in certain areas of the market in the way a one-asset investment strategy simply wouldn’t, as well as making sure you can benefit from the positives of a range of different assets all at once, even if you are not starting out with a massive pot.
For example, if you had all your money in traditional rental properties across the last few years, you would have been making an impressive return. However, you may well have missed out on the sudden boom that occurred in student rentals, which has rocketed in the last three and a half years with more than £15 billion having been spent on homes of this type.
By having your finger in a number of property asset pies, you ensure that you don’t miss out on any sudden positives that arise in the market.
Perhaps more importantly for the new investor, however, is the way that diversity in property really helps to spread the risk. If you’re starting with a small investment fund, the last thing you will want to do is risk it all. While the market is relatively robust in the UK, it’s never completely watertight, and things can go wrong.
What’s unlikely is that everything will go south at once. If you’ve put money into residential homes seeking capital gains, for example, a correction in house prices can be offset by the fact this is likely to see rental demand rise. To diversify essentially means you have more power than ever before to protect your money more effectively while capitalising on positives across a broad range of asset classes.
In the modern age, where property has risen to take its place among the upper echelons of asset classes, there are more ways to invest, and more assets to invest in, than ever before. Using these to your advantage will be the key to unlocking success.