After what we saw in 2020, diversifying your real estate investment portfolio is a wise decision to make. Anything can happen as we enter our second year of COVID-19, and no one knows what life will look like post-COVID; why not diversify your portfolio? It’s an effective way to mitigate the risks that come with long-term investments through various financial instruments, industries, and other categories. To be best prepared for whatever 2021 throws your way, here are some ways to diversify your property portfolio.
One way you can effectively diversify your portfolio is by choosing your locations wisely. It’s natural to want your assets close to home, but having your investments in different locations can open up a wide range of opportunities. Rent, for example, will determine how much you make when comparing your monthly rental income to the property value, and the amount of rent changes depending on where the property is located. Rent yield in London is at 2.83%, while Birmingham is at 4.25%. Property prices also vary depending on where the asset is located.
When figuring out where you want to invest, consider the potential for growth as well. Areas undergoing regeneration will push the demand for property, leading to you profiting more for your investment in that area.
You shouldn’t invest in only one type of property if you want your assets to grow. Having diverse property types can offer you flexibility—for example, having a balanced selection of apartments and houses will give investors an increased security level in their property portfolio by lessening the impact of evolving tenant demands. You can further diversify your portfolio by choosing between completed or off-plan properties. Both of these have different benefits and drawbacks, but having both in your portfolio allows them to complement one another. Completed properties let you receive passive income sooner, while off-plan properties let investors purchase below market value before the property reaches its fullest potential.
Diversifying your property types will allow you to maximise your returns while reducing the risk to your portfolio.
The above examples aren’t the only ways to diversify your portfolio. Finding risk management strategies will give you more options to keep you and your investments safe from the ever-changing market. Looking back on the past year and ahead to the remainder of 2021 should help you decide which strategies will suit you and your portfolio best for your long-term investment goals.