Whether you are new to the property market and seeking to diversify your holdings geographically and currency-wise or you’re a seasoned investor, understanding the types of properties that should anchor your investments is crucial.
From the dependable returns of core assets to the growth potential in value-add and development opportunities, each component plays a strategic role in balancing your portfolio.
As such, we wanted to share insights on the key elements that every investor should consider when assembling a robust property portfolio.
Drawing from decades of industry experience, we’re here to help you evaluate potential investments based on risk tolerance, market conditions and long-term objectives, ensuring that each property contributes to a well-rounded and resilient investment strategy.
Foundations of a Property Investment Portfolio
If you’re buying your first property, you want to buy something safe that brings in a steady income and this is what the industry calls a ‘core’ property investment.
What that would look like, for example, is an already leased commercial property, with a long lease, with a quality tenant and in a strong location.
With this type of asset, there is usually very little hassle, once you buy it you collect the rent at somewhere between a 5-8% yield and a property manager deals with any issues.
The next step, once you’re happy that your core property investments are secure and you want to take a bit more risk, is to purchase a ‘value add’ property.
This is a property that already has income, but there is potential to add value and increase that income.
This can be done in a number of different ways, from restructuring the leases to restructuring your finances or someone else’s financing that you might have inherited.
For example, if you bought the company that owns the asset and there is a loan in place, you could renegotiate the rate, so you can make money through the structuring of the holding from a financial perspective rather than physical.
Then, of course, there is the option of getting planning permission and actually making the property physically bigger or refurbishing the property so you can rent it out for a higher price and comply with increasingly strict EPC requirements.
Finally, once you have one or more of both of these classes in your portfolio, the next level up is a development project, which usually means starting from scratch.
These ventures demand substantial upfront capital and carry a greater uncertainty, as various challenges can arise during the project. Investors must ensure they have the financial backing and project management skills available to sustain the project through to completion.
Despite these risks, however, the potential financial rewards from development projects can surpass those of ‘core’ or ‘value add’ investments, offering more substantial returns on the initial investment.
Exploring different Property Investment sectors
Industrial property used to be the orphan of the property investment industry, but these days it’s well worth adding to your portfolio, as in the era of internet commerce, everybody needs a distribution warehouse or a dark kitchen.
At present, industrial properties are the safest option for investors, overshadowing traditional commercial spaces like retail or office properties, which come with their separate challenges.
The volatility of the retail market can leave properties vacant without warning, while the shifting dynamics of work, especially the changing trends in remote operations, have destabilised demand for office spaces.
There is also the issue that the required EPC (Energy Performance Certificate) rating for commercial properties is getting higher and higher, so you have to be aware that if you buy a property today you may have to put in double-glazing or install a new boiler down the line to improve the EPC rating.
Then comes residential, which has its benefits, especially if you want to live in the property, but I rarely recommend it to my clients as an investment because of the higher stamp duty that it attracts amongst other additional taxes whilst generally producing lower yields than commercial property.
Beyond the conventional property investment sectors, there are unique alternative opportunities such as student accommodation.
Recognised as a stable long-term asset class, student housing can offer significant returns if managed effectively.
However, the success of such investments hinges on thoughtful design tailored to student needs and a strategic location close to universities. Without these elements, consistently attracting tenants could become challenging.
Geographic diversification
Investing in UK property often means focusing on locations that offer the highest accessibility and economic activity, with London standing out as the best choice. As the UK’s financial and cultural hub, London’s property market typically presents frequent opportunities for excellent returns due to its high demand and central role in the nation’s economy.
For industrial investments, areas like Manchester and the golden triangle between Oxford and Cambridge, particularly along the motorways, are also strategic choices. These locations benefit from excellent transport links and lots of industrial activity, making them attractive for logistic and distribution-focused properties.
Diversification within your property portfolio is important for risk management. Spreading investments across various geographical locations can help stabilise returns by offsetting potential downturns in any single market. This strategic spread not only mitigates risk but also enhances potential gains across different property markets.
Reviewing your property investment portfolio
The strategy behind managing your property investment portfolio hinges on your initial investment objectives. For instance, if your goal was to enhance the value of commercial properties through lease renegotiations or physical expansions, reaching these milestones typically signals a clear point to consider exiting the investment, having successfully met your targets.
On the other hand, if your aim is to cultivate a long-term income stream from your properties, it’s crucial to stay informed about market dynamics and broader economic indicators.
Property markets tend to be relatively stable, but they are not immune to local or global shifts. For example, if you own property in Aberdeen and a key local fossil fuel employer departs, this could significantly impact property values. Staying vigilant and responsive to such changes is key to safeguarding your investments.
Maintaining a long-term perspective is also essential in property investment. Success in property doesn’t come quickly – it requires careful, informed decisions, sustained by the guidance of knowledgeable advisors and a good measure of patience.
If you’re looking to refine your investment strategy or need advice on managing your property portfolio, Curzon Land is here to assist. Contact us at cgreen@curzonland.com or call +44 (0)7948 979 490 for expert guidance tailored to your investment needs.
