September 2nd, 2021
Despite the ups and downs the Buy-to-Let property market has seen over the years, its performance in the last 18 months has only emphasised its resilience. With existing landlords now planning on staying in the market for longer, and more investors considering this asset, what makes a successful property portfolio?
Diversity is the key to any investment portfolio, but when it comes to property, it has the potential to both maximise your passive income and reduce the impact of any void periods. SevenCapital, a leading UK property investment company, discusses how exactly investors can build and diversify their property portfolio:
Considering Different Price Points
Property investments can diversify and investing at various price points within the market is one option that can often give investors greater flexibility with their finances.
The price of a property can be a fairly accurate indicator of how much it will average in terms of monthly rent, and subsequently, what sort of tenant you will be targeting. Generally speaking, more expensive properties will have more potential for generating higher rents, which will inevitably require tenants with higher salaries.
That said, the rent for more expensive properties need to be high to deliver a positive ‘rental yield’. This is why many investors tend to opt for more affordable properties in more ‘exciting’ or emerging areas – you invest less capital upfront but can benefit from rising rents delivering a better gross yield.
It’s crucial to remember how important affordability is to tenants. With council tax, bills and so much more to consider, this should be kept at the centre of your mind while building a portfolio.
Investing ‘Off the Plan’
When people think of investing in Buy-to-Let property, their minds typically go straight to completed property. While there are many advantages to having a completed rental property, such as the opportunity to immediately start receiving a passive income, investing ‘off the plan’ can both diversify a portfolio and potentially boost its value in the long-term.
Investing in off plan property essentially means investing in a property before – or during – construction. Although having your money tied up during the build isn’t for everyone, it is this process that can make for a potentially lucrative investment asset.
The duration of a build for a residential development is typically around three years, which means that both the local area and property market can change a lot in this time. This is particularly true for emerging locations, where your property has the opportunity to undergo natural capital growth as the local area evolves.
Upon completion, your property could potentially be worth significantly more than you initially paid for it, meaning when you eventually come to sell it, you could stand to make a healthy profit. Similarly, if your property undergoes natural capital growth during the build period, this could also see rental inflation that exceeds the pace of growth.
So, when combining off plan and completed property within a single portfolio, investors can benefit from both a consistent passive income generated by their completed property while their off-plan asset builds capital growth in the meantime.
Location, Location, Location
Deciding on the location of a Buy-to-Let property can be one of the most difficult decisions for investors, with varying rental yields, tenant demand and transport links all having an impact on the bottom line. The impact a location can have on the performance of a property portfolio is what makes it a key diversification technique.
Rental yield refers to the returns you stand to make on your Buy-to-Let investment once your monthly rent is compared against your property’s overall value, making it a key consideration for investors. While the average rental yield in the UK is currently sitting at 3.53%, the disparities across the country can significantly influence the overall performance of a portfolio.
For example, the likes of Yorkshire and the Humber are averaging rental yields of around 4.56%, as opposed to London which stands at 2.83%. By having a selection of properties with varying rental yields, you could benefit from multiple income streams of different amounts while safeguarding your portfolio from any market fluctuations.
Buy-to-Let property has the potential to be a lucrative investment asset, but to maximise your portfolio, diversification is key. Whether you choose one specific avenue or a combination of two or three, diversifying your portfolio is often a relatively straightforward process, especially if you consider price points, locations, and alternative ways of investing.
This article is a guest blog provided by SevenCapital.
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