“Location, location, location” is now a cliché – everyone knows how much it matters where a residential property is as much as what it’s like.
Recent housing market data has shown the huge regional variations in market behaviour – parts of London are slowing, while various parts of the north of England are undergoing a ‘mini property boom’.
But if investment location matters so much, why not diversification too – not just of geography, but also across properties and tenants? Why is it that the common-sense investing requirements we apply to stocks and shares investments go out the window when investing in property?
Recent data from the Council of Mortgage Lenders show that the majority of buy-to-let landlords own only a single rental property, usually not far from where they live. In fact property remains one of the nation’s favourite asset classes – according to a recent ONS study, 49% of people think investment in property represents the best way to save for their retirement.
It’s no surprise: it offers a tangible ‘bricks-and-mortar’ risk profile that is more conservative that many other investments, and it’s performed well historically. But recent regulatory and tax changes putting pressure on landlords to reconsider their buy to let investment, now is the perfect time to address the issue of diversification.
It’s easier to have a property round the corner, for sure. Most amateur landlords like an investment they can keep an eye on locally for maintenance and management. They might even have bought opportunistically, knowing the local sale and rental markets and spotting a great deal. So far so sensible.
Proptech promotes diversification
But then issues get a bit more complex. How to protect against rental voids? Buying a few properties is an option, but with the average property now priced at over £300k according to Rightmove it’s simply unrealistic to expect the average investor to be well diversified, as is borne out by the CML data.
Even if one was fortunate to have enough to buy second or third investment properties, consider what it would take for a Londoner to invest in the strong-performing cities of Leeds, Manchester or Birmingham. Hours of desk research to understand the market and multiple weekend or work-day trips to diligence properties. And a successful investment then means finding a local managing agent you trust and can afford. It’s punishment for prudence: the more diversified away from home you are, the harder it becomes.
But potential property investors should look for ways to make it happen: how many non-locals realise that Manchester, Birmingham and Liverpool saw 7.1%, 7.7% and 7.8% price growth respectively over the last twelve months according to the Hometrack House Price Index. There are many more examples. There are even fantastic buying opportunities in London at the moment for the discerning, professional investor.
Thankfully with technology it’s getting easier to be an investor ‘away from home’. Through platforms such as Bricklane, investors are increasingly investing in diversified properties of portfolios in chosen locations - one fund focussed on London, and one on the Regional Capitals of Leeds, Manchester and Birmingham.
Unlike traditional funds, this means that you can not only invest away from home, but exclude your home market from your investments if you so wish. Investors still enjoy the gains and income from property that they previously enjoyed, but without the hassle, and with the potential to take advantage of tax benefits if investors use their ISA or pension allowances
There’s always going to be a world in which intrepid buy-to-let landlords get in the car to visit uncharted markets, or continue to invest in flats near their homes. But change is coming for the average landlord: indirect investment, with geographic choice across the country, done in 10 minutes on your computer or smartphone.