Why you Should Diversify your Property Investments

publication date: Nov 9, 2009
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

When it comes to property investment, many people start with ‘what they know’. This means buying a property, renovating it and then selling it on at a profit, or buying a property then letting it out.

However, once you have some property investment under your belt and before you look to do ‘more of the same’ then it’s worth making sure that your next investment(s) work in good and bad economic conditions, perhaps deliver a return at different times or in different ways to your existing investments.

So what does your property investment deliver at the moment? Not sure? Then write down the following:-

What have you invested?
Don’t forget to include all the costs you have incurred from legal fees to surveys, required certificates (building control sign; gas safety certificates etc), any agent's fees as well as large sums such as deposits.

What have you earned?
Calculate what your investments have delivered to you to date. Increased capital? Net income?

Work out the return
Then take the total amount your investments have/are delivering to you and divide this by the amount you have invested.

Check this against other potential returns
If you are investing in residential buy to let, check the returns you could be getting against commercial investments. If you are doing renovations, check what you could get if you bought land and built a property. Even better, check the buy to let returns against building a property and then renting it out.

Always check your investments against your exit strategy!
It’s not easy to work out whether an investment works for you unless you have a clear exit strategy. Make sure that you know what you expect your properties value to increase to, what income you need to make it worthwhile holding on to your property asset. 

Understand market conditions!
Also be clear on what’s happening in the market. Some people worked out that selling in 2007 at the height of the market was a good idea, they are the ones investing back in the market now as they have the cash to do so.

Having done your research you may find something that gives a better return to your investments. However you also may decide to ‘carry on with what you know’. Either way, at least you will have done your investment due diligence and know if there is a property investment opportunity that makes sense to add to your investments or not!

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