Investment diversity

25 May 2010, Buy Association

By Camilla Dell

Something we have all learned over the last two years, and most recently with the election result, is that nothing is ever certain. The mantra ‘don’t put all your eggs in one basket’ is now perhaps more relevant than ever, particularly where money matters are concerned. Property investment is no exception, and I, for one, certainly see diversity as the key to success in this sector.

At Black Brick, we have always believed that diversity is essential when it comes to investing in property, whether on a domestic or international level. Diversity minimises the inherent risk factor by spreading the impact of any change in demand for a particular property type or location. It also reduces the effect of void periods on income as it is unlikely all an investor’s properties will be empty at any one time. To this end, for instance, three 2-bed flats in different locations are a better option than one house of the same value. The key is to remember that, no matter how tempting returns may appear, it is never advisable to pile everything into one specific location or property-type.

The European debt crisis, which started in Greece, has already focussed international investors’ minds on the advantages of diversified investment portfolios, and the need for ‘safe havens’ is more prevalent than ever. Whilst property as an asset class seems to be moving higher up the agenda for investors, the unique prime central London market also offers the ‘safe’ long-term investment that is a necessity in any portfolio. As a result, buyers from troubled European economies such as Greece are currently looking to buy in London quite fervently.

The principles practiced by overseas investors – namely diversity and the importance of ‘safe havens’ – can be applied domestically as well as internationally. We often advise clients looking for portfolios in London to not only buy in established prime areas such as Mayfair or Knightsbridge, where values remain relatively stable and rental demand is high, but to consider secondary locations where the long term yields can be much higher. It’s all about balance, and acquiring a property in a prime area of London is very much the safe haven that we feel every portfolio should have.

As secondary locations, we would suggest perhaps Maida Vale and Shepherds Bush, which offer good value compared to Notting Hill and Marylebone. Also West Hampstead and Queens Park are a good alternative to the more established St Johns Wood and Hampstead. These areas share the same benefits as their more expensive neighbours, including good transport links, and trendy shops and bars, but are generally 20% – 30% cheaper.

In terms of type you can’t go far wrong with two-bedroom flats, which tend to be the best rental market properties. It goes without saying that they should be in good condition, and located in a safe neighbourhood with good amenities – lower ground floor and top floor flats without lift access should be avoided. New builds with porters, parking and gyms will always rent well in central London but may not appreciate in value as well as a period property, so you might want to consider including both types in your portfolio.

Put simply, choosing where and what to buy for investment involves identifying demand. This is what makes London a great place for investment as not only is there sustained demand from foreigners looking to take advantage of our good education system, but there will always be demand from those from other UK locations, as well as from overseas, who want or need a base in one of the world’s great cultural and business capitals.

www.buyassociation.co.uk

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