Diversification – The Property Investment Trend for 2018

The past couple of years have really highlighted two facts seasoned investors have long known.

1: Property, in general, is a great asset class for many investors

2: The importance of property to many economies means that it can be a political hot topic.

The UK buy to let investment sector is a prime example of both of these points. On the one hand, high demand for rental property offers the potential for investors to generate a reliable stream of income. On the other hand, it can also lead to landlords feeling like they are being used as political punch bags and as scapegoats for the fact that the UK has a shortage of housing in general and quality rental housing in particular.

Diversification has the dual benefit of spreading your investment risk and helping to mitigate the impact of political risks.

Direct investment versus indirect investment

Direct investment in property essentially means becoming a landlord in the traditional sense. The property is yours and you manage it as you wish either yourself or through an agent. While this route does indeed give you most control, with great power comes great responsibility and that can involve more effort than some investors want, regardless of how good their agent is.

Indirect investment, as its name suggests, basically involves investing in property via a third party such as a property developer or a commercial landlord. Examples of indirect investments include property bonds, property funds and buying shares of property-related companies. These options are also good choices for smaller-scale investors who might struggle to buy a whole property even with financing and for those who prefer to avoid using leverage for investments.

Residential property versus commercial property

Again, residential property has long been the investment vehicle of choice for many private investors and again, it’s easy to see why. Most people are likely to have at least some degree of familiarity with the residential rental market whereas commercial rentals have tended to be a more specialised niche.

At the same time, however, the commercial rental market is most definitely accessible to private investors and offers similar benefits to the residential property market with the added bonus of being less of a target for politicians. What’s more, certain sectors of the commercial property market are essentially residential rentals in a politically acceptable disguise, student halls and care homes are both clear examples of this.

Political interest in housing can be a benefit

The reason why politicians take such an interest in the health of the housing market is because they know that voters do and astute politicians also know that ultimately the health of the UK property investment market depends on there being a healthy balance between supply and demand. Right now, the UK property market is very much a seller’s market with a high level of competition between buyers.

Changing this will mean extensive investment in housing and, one way or another that is going to involve the government and the private sector working together for everyone’s benefit. This has the potential to open up some very exciting opportunities for investors.