Diversifying your portfolio with property

If you’re a seasoned investor, you’ll know the value of a diversified portfolio. Traditional paths to diversification often include a split between stocks and bonds, steadily decreasing the risk tolerance and leaning more heavily towards bonds as retirement approaches. With the compression of bond yields over recent years, many investors have explored other asset classes like renewable energy, infrastructure and property funds. Many will also have bricks-and-mortar investments, whether a singular rental or a property portfolio.

Property was an extremely hot topic in 2020. Residential landlords have dealt with locked-in tenants, rent holidays, and huge delays in court proceedings relating to evictions and rent arrears. But the arrival of multiple effective vaccines heralds a potential return to normality for the later part of 2021. Despite expected job market volatility, hopefully the worst should be over for the residential lettings sector. Residential prices were bolstered by a strong summer demand in 2020 that surpassed all expectations, leading to the biggest rise in typical house prices for over 3 years.

Commercial property investors, on the other hand, face a much tougher recovery. For commercial spaces like offices, corporate premises, retail units and shopping centres, the die is cast. Even with a tentative return to normality in sight, the homeworking revolution has already occurred. We may not see a return to the volume and value of inner-city commercial buildings for a long time to come.

“Residential prices were bolstered by a strong summer demand in 2020 that surpassed all expectations, leading to the biggest rise in typical house prices for over 3 years.”

The truth is, commercial property purchasing and management is a cyclical asset class, and it always threatens to leave the investor vulnerable should an economic crisis come along. And those born since 1980 have already seen three.

Traditional residential investing comes with its downsides – but although people may not always need office blocks, they’ll always need somewhere to live. What’s more, demand continues to significantly outstrip supply in the UK, and the inevitable economic uncertainty that will follow the pandemic puts pressure on the government to provide housing for the vulnerable on long term, inflation-linked leases. Situations of this type lend security and reduce risk, making them excellent candidates for investment.

Investing in residential property

You may have undertaken (or be very familiar with) the traditional process of pursuing profit via property. Acquiring a buy-to-let is the most common strategy, requiring a significant capital investment. The large amount needed upfront leaves little room for diversification. There is also a lot of hassle, non-returnable expenses (solicitors’ fees, surveys, stamp duty etc.), and paperwork, followed by the full-time commitment of providing a liveable, functioning home for your tenants.

Recently, a small number of funds have emerged that provide access to different branches of the residential property market. They provide a way around the practical hassles and obligations of buying traditionally but the investor does not have control over where their money is ultimately invested and fees can be high.

For modern investors keen to establish a balanced and diverse portfolio, there is another route into this asset class that comes without the pitfalls a volatile market can present. Fractional investment in property via a platform means your money can be easily split across multiple properties. The forerunners in this market focused on standard buy-to-let investment opportunities. However, it is now possible to invest in properties that are leased to charities or groups backed by the government, meaning they are particularly stable, reliable investments that require very little practical input from the investor, compared to typical buy-to-let arrangements.

Property platforms provide an innovative and secure way into the property market without the sizable upfront costs. It allows you to select suitable properties on the platform, choose the amount you’d like to invest, receive monthly rental payments with full financial breakdowns, and contribute to a truly diversified portfolio.

Housemartin builds close relationships with charities in order to match investors with much-needed supported accommodation backed by government funding. For more information, please email us at support@housemartin.co or call 0333 011 9830.