How to Safely Diversify Your Property Portfolio

Property exterior - villa for sale near Barcelona - Spain (Photo credit: lucasfoxbcn)

When it comes to property investment, the saying goes ‘it’s as safe as houses’. As we’ve seen from recent global financial events, this isn’t always the case, however there is no need to be scared off the market as a whole. The key to making sure your property investments remain safe is (apart from limiting the amount of leverage involved) diversification.

There’s another old saying, one including eggs and baskets, and this one is true. Unless you want to end up with a scrambled mess on the footpath, it pays to branch out and hedge your bets with property. By following the simple tips and tricks below, you can work towards a secure investment portfolio that will protect your assets.

Location

Diversifying in terms of the location in which you invest is a great way to distribute your risks and investments. If you’ve got two properties in the same suburb, go across town to another suburb the next time you want to invest.

Investors often make the mistake of concentrating their investments in the one area because they feel confident there and know the market. This is one of the worst things you can do in terms of risk management, because it means that if that particular suburb takes a dive, all of your investments are going down with it, not just one.

The same thing goes on a state-by-state basis. If you own an investment property in Sydney, look in Melbourne or Brisbane for your next one. Not only does this further minimise your risk, but it will also save you money on land tax, as different states have different land tax thresholds.

Type of Property

The other major way in which you can diversify is by choosing to invest in different types of property. A lot of investors choose residential property as their main source of business, because it’s what they are most familiar with.

In fact, the commercial and industrial property markets can be incredibly rewarding, as well as representing a smaller initial cash outlay. By changing up the type of property you invest in, you allow yourself a lot more room to breathe, and further reduce the amount of risk attached to each investment.

Hold Onto Properties

One of the most common mistakes made by property investors is to buy and then sell again in too short a time period. One of the best ways to stay safe in the property market is to stay in the property market. Prices and values may rise and fall, but the only ones who are really burned by this are those who choose the wrong time to sell, and then fail to get back in while the going is good.

With stamp duty costs as well as all the other associated costs involved, making transactions too regularly (without sufficient financial benefits to be gained) ends up being a cash drain.

The key to succeeding in property investment isn’t lucking out and buying a property that skyrockets in value, but rather simply a case of persevering and making sensible choices that minimise your risk over the long term.