Diversification key to buy-to-let success

Tuesday, 16 October 2007 12:00 AM

Newer landlords should look to diversify their portfolio to reduce risk and increase yields, according to property investment consultancy Property for Life.

Over half of all existing buy-to-let landlords are looking to expand their property portfolios in the coming 12 months, according to the Association of Residential Lettings Agents (ARLA), but there are fundamental differences between novice and established agents.

According to Property for Life newer investors with fewer properties should seek to diversify and balance their portfolios.

"Typically, investors with a lower level of experience will make initial purchases close to home because they know the area and prefer to be able to keep an eye on the properties," commented David Austin, managing director of Property for Life.

"Novice investors predominantly purchase purpose-built flats and favour one type of tenant."

However, experienced investors are able to diversify.

"In contrast, seasoned investors diversify on area, property type and tenant type.

"Experienced landlords invest in areas where rental yields are greater with fewer void periods. Areas undergoing regeneration are particularly popular with these investors," continued Mr Austin.

Yet, there are many ways to diversify, not just geographical.

"Diversification in the UK has become associated with investment in different locations, but this does not have to be the case.

"Novice investors who prefer to purchase in one area should aim to invest in different types of property which appeal to different tenant types.

"For example, by buying a student flat and a family house in the same town, investors have the advantage of understanding the area whilst successfully spreading the risk and benefiting from economies of scale," concluded Mr Austin.

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