Building a property investment portfolio can be a great way to realise your dreams. Having a number of properties that provide you with an income should provide greater returns than most other forms of investment, so when it comes to diversification you need to think carefully about what you are going to do.
Why Diversify your Property Investment Portfolio
Diversification is all about managing risk. You do not need to diversify your property investment portfolio to increase its performance – this can work sometimes but there are no guarantees.
Once you have established your property investment goals you will be able to decide on your risk target level. Base this target on your overall goals, your tolerance to risk and the time horizon that you are operating within. When you diversify you can provide the potential to improve returns you are receiving for your chosen level of risk.
How do you Diversify?
When you have a property investment portfolio a number of opportunities are open to you. Diversifying means spreading your capital across the various opportunities. When you do this you will often decrease the risks involved. It is never wise to put all of your eggs in the same basket.
As an example of this let’s assume that you have £1,200 to invest and you sink this into just one opportunity. The risk of doing this could be greater than if you had invested £400 on three different opportunities.
Examples could be a mixed use property that is a combination of both a commercial and residential use property, a residential property where you are receiving a single income from an individual or a family and an HMO (home of multiple occupancy) where you have a number of tenants all paying you rent each month.
What are the Benefits of Diversification?
Any good financial advisor will tell you that having a well diversified portfolio of investments is the way to go. You never know what is around the corner and if you have over invested in one property this can come back to bite you.
There will always be changes in the property investment market. Some of these will be good and some will be bad. It is very important that you spread your money across a wide range of investments to provide the maximum protection should things go wrong.
With property investment there can be many risks. The housing market can change at any time and the values of properties in certain areas can fall dramatically. The opposite is also true of course and different areas of the country can experience price increases.
At the moment the demand for rental properties is high but you cannot rely on this forever. New housing developments in specific areas can severely impact rental demand. If all of your properties are located in the same area then you will be facing a huge problem if the demand dips.
Why not go Hands Off with your Property Investment?
At CPI we have a great deal of experience with property investment. We have had many successful property investment projects and now we are opening the door on a small number of “hands off” property investment partnerships.
Here you will be leveraging our expertise and experience and letting us do all of the hard work. You can literally kick back and enjoy your returns. Find out more by contacting us for a free no obligation discussion.