Being a property investor in London is very rewarding - as long as you learn how to navigate the intricacies of the dynamic rental market. If you look at the statistics, you’ll see that rental growth could go as high as 6% in London by 2027.
As a property investor, this gives you a great opportunity to grow your portfolio. You need to act now if you want to maximise the growth potential in the next few years. That means pooling your resources to buy different properties that you can invest and earn from. Remember, it’s not just about acquiring as many properties as you can. It’s about learning how to diversify your portfolio so you’re poised for maximum growth regardless of how the market turns in the coming years.
In this article, let’s explore the different property types that you can consider and how you can successfully diversify your portfolio for greater returns.
The London Property Landscape
According to Spearswms.com, property agents are generally “optimistic” about the London property market. Based on the performance in 2023, it’s evident that the UK is still a favourite among property investors. The world-class schools and trustworthy Land Registry system are among the reasons why the super-wealthy investors have taken a huge interest in London.
What about the housing stock? Government reports reveal that the housing supply is still lower compared to the 45,676 additional dwellings in 2019/2020 and 37,204 in 2021/2022. Among the other data reported are the following:
- There are 24,360 new homes (small developments of 10 homes or less) as of the October report.
- 58,300 planning permissions have been granted for new homes in London alone. 38% of homes recommended for the Mayor’s approval were affordable homes.
- A total of 54,723 BTR (Buy-to-Rent) homes have been developed with 73% reaching completion between 2009 to 2022.
- 25,700 affordable housing and 10,270 new council homes have already started being built thanks to the GLA (Greater London Authority) funding scheme.
- 793,250 social housing units are being rented in 2022.
All these facts show continuous growth in the property market. You can choose from many areas if you want to consider diversifying your property portfolio. As you consider your options, focus on these two types of property investments.
Commercial Properties
These refer to properties that are used for business purposes. The options include office spaces, retail stores, industrial facilities, etc.
Corporate letting suffered for a while during the pandemic but it’s witnessing a comeback as business travellers increase in numbers. Office workers are also adapting to the hybrid setup of working in the office for a few days and then at home on certain weekdays.
Overall, it’s still a profitable property market to consider if you want to diversify your portfolio. As of 2022, the commercial sector in the UK is still considered the second-largest real estate market in Europe.
If you plan to invest in commercial properties to rent, focus on bustling commerce hubs with vibrant neighbourhoods and high foot traffic. If you want lower maintenance options, you can go for warehouses or storage facilities.
Residential Properties
There’s a long list of investment options in the residential property sector. You have flats, studio flats, apartments, detached houses, luxury residences, etc. These can be offered as rental units for long-term or short-term arrangements.
Understanding the preferences of residents and guests will give you an idea of what type of property will bring the most rental yield. Generally, the UK residential property market is very much in demand. There’s a limited number of affordable housing that is pushing people to forego homeownership and rent a dwelling place instead.
The result is a higher rental price that could lead to higher returns on property investments. Not to mention the growing student population and business travellers who are also looking for places to stay while in London.
If you want to invest in this sector, look for the best neighbourhoods in London that show high rental demand and yield potential. Sometimes, it’s not just the proximity to business central hubs or educational institutions that pushes demand higher. Being close to reliable public transport can also make a property a lucrative investment.
You should also consider the evolving preferences of residents and guests. For instance, business travellers and students require a comfortable space to work or study. You’d have to provide furniture for that.
Sustainability is also another thing that you should consider. Complying with local rules means having the right Energy Performance Certificate rating. You can reach the minimum rating by using energy-efficient appliances and light fixtures, having proper waste management, using smart technology, etc.
Tips to Successfully Diversify a Property Portfolio
Now that you have a better idea about the property types that you can invest in, let’s talk about how you can successfully diversify your portfolio in the London property market.
First, what is diversification? It means putting your money in different investment types. The idea is to spread your finances to minimise the risk of losing investments. By diversifying, you’re protecting your portfolio as a whole. Even if one investment fails, you still have others have might be performing better.
To implement the right diversification strategy, you have to understand the dynamics of the market, identify your financial goals and have the right letting strategy - among others.
Here are the tips that can help you create a resilient property portfolio.
Study economic indicators
Start by understanding the economic indicators that affect the property market. Even if you’re working with a property management company to handle your properties, it’s still prudent to understand how the property market works. You may not get involved in the day-to-day management of your property investments, but you’re still responsible for making decisions to grow it.
Knowing the real estate landscape in London and how it moves in patterns will help you recognise opportunities as they emerge. It’ll help you decide on what to do with your properties so they can bring maximum returns.
You can also keep an eye out for market trends to make properties more appealing. For instance, London is pushing for sustainable housing. Making sure your property meets the minimum EPC rating will make your investment more appealing to eco-conscious tenants.
Define investment goals
A successful portfolio starts with a vision. Before you start taking steps to diversify your portfolio, define your investment goals first. Have a concrete idea of what you want to achieve so you can use it as a guide. It’ll help you make the right decisions that are aligned with your objectives.
For instance, your goal is to grow your portfolio while creating a steady flow of passive income. Focusing on buy-to-let properties will allow you to reach this goal.
Invest in both residential and commercial properties
Diversifying your portfolio means adopting different types of investment strategies. If you want to grow your property portfolio, don’t just focus on residential properties. Opt to invest in commercial properties as well - or vice versa.
Having a collection of residential units and co-working spaces would allow you to cater to a wider market. This will bring your portfolio stability and versatility despite the constantly evolving real estate market.
Choose properties in different locations
Geographical diversity is another strategy that you can use. It safeguards your portfolio from localised fluctuations in the market. One area may be down but it won’t affect your portfolio’s growth as a whole because your investment in other areas might be able to sustain it.
When it comes to choosing locations you’ll invest in, do your research. Check the United Kingdom region map to find the good neighbourhoods of London - or at least those that have growth potential. Different locations could also mean targeting different types of residents and guests. Make sure you’re putting your investment in areas that are aligned with your investment goals.
Analyse different types of investments
Another way to diversify your portfolio is by opting for both Individual and shared investments. It’s tempting to go for individual investments only because you get complete control over it and you get 100% of the rewards. But that also means the risk is all yours.
If you opt for shared investments, there’s another layer of risk but you also share the financial burden with others. However, if you choose to partner with the right people or company, you can tap shared resources and expertise that can lead to greater returns for your portfolio.
Explore various letting strategies
Renting properties is an effective way to profit from your portfolio. Understanding different letting strategies will allow you to maximise the earning potential of your investments. For instance, choosing flexible letting strategies that combine short-term and long-term leases will help you adapt to the changing needs of residents and guests.
For instance, your property is near an educational institution. This would make students your ideal target market. But what happens to your property during the school break? You can arrange for the property to be turned into a vacation rental for a couple of months. Partner with a property management company that can help you implement flexible letting strategies so you can maximise the rental income from your properties.
Consider specialised properties
Now that students have been mentioned, why not consider specialised properties that target specific guests or residents? Consider the location of your properties and the target market that you can attract. Some of your properties can become student accommodations, vacation homes, co-living spaces, etc.
Each of these offers unique opportunities to grow your portfolio. Not only that, it also diversifies your income sources to make your investment returns more stable and secure.
Seek professional advice
Diversifying your portfolio can be confusing if you don’t have someone to guide you. Partnering with a property expert can give you strategic insights that’ll help you make progressive decisions.
For instance, partnering with a property management company to handle all your properties will give you access to both expertise and experience. They’re well-versed in the intricacies of the rental market and they are in tune with relevant market trends that can affect your properties’ performance. Apart from giving you advice, they also have a network of service providers that can help with the upkeep of your property.
Consider partnering with a reputable and trustworthy company so your decisions can be backed by expertise.
Diversify your Portfolio for Greater Returns
Diversification is a strategic choice that can bring incredible growth and stability to your portfolio. It’ll help you create a resilient portfolio to shield it against the constantly changing movement of the property market.
It’s crucial to understand the different types of properties at your disposal and know how to strategically use them to maximise investment returns. Although it can be confusing at first, partnering with an expert can make the whole process easier to plan and implement.
When it comes to property management, Opago has the expertise and experience in handling multi-property portfolios. We can guide you in transforming your portfolio to be more resilient, adaptable and financially successful.
If you’re ready to diversify your portfolio, contact us so we can implement your investment plans.
