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News: BTL: Diversify or die

Tue, 16 Oct 07

Diversification is the key to long term property success, argues Property for Life, the property investment consultancy...

Less experienced property investors should follow the example of professional landlords and look to diversify early on to spread the risk and secure more lucrative returns.

More than half of all buy-to-let investors are expecting to expand their portfolios over the next 12 months.* However, there are fundamental differences between a novice and a professional approach to investing in property.

Economies of scale

With the correct advice, investors with less experience and fewer properties should be aiming to diversify

and balance their portfolios to ensure that they attain better risk-adjusted returns and benefit from economies of scale.

David Austin, managing director of Property for Life, comments: “Typically, investors with a lower level of experience will make initial purchases close to home because they know the area and prefer to be able to keep an eye on the properties. Novice investors predominantly purchase purpose built flats and favour one type of tenant.”

“In contrast, seasoned investors diversify on area, property type and tenant type. David Austin continues: “Experienced landlords invest in areas where rental yields are greater with fewer void periods. Areas undergoing regeneration are particularly popular with these investors.”

Wider appeal ‘vital’

David Austin continues: “Diversification in the UK has become associated with investment in different locations, but this does not have to be the case. Novice investors who prefer to purchase in one area should aim to invest in different types of property which appeal to different tenant types.

“For example, by buying a student flat and a family house in the same town, investors have the advantage of understanding the area whilst successfully spreading the risk and benefiting from economies of scale.”

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