7 thoughts on diversifying your property portfolio

Spinning Plates

Diversification of investments is of course, instinctively a good idea. The basis for this is to spread your capital into a range of asset classes so as to “hedge” against one particularly type of investment rather than the sense of putting all one’s eggs in one (or very few) baskets.

But as with most aspects of investing, the story isn’t quite that simple…

Imagine you are a traditional, experienced private property investor with a high proportion of your total assets in property and wanting to away from purely property related opportunities.

In general terms this is a sound strategy. I would say that some additional factors should always be borne in mind. Here are 7:

1. While never the only game in town, real estate is still known to be the most resilient and secure of assets in developed countries. The right balance of different property sectors in a portfolio can give a powerful hedge without unnecessarily introducing unknown variables into the equation.

2. One key objective of diversification is to reduce risk of loss. But there are caveats to think about: 

  • Unless this is done with an investment that has a similar or better risk-profile and the market sector is equally well-understood by the end buyer, diversification could actually increase the riskiness of the investment portfolio, outweighing the hedging against the rest of the portfolio. 
  • Your years of experience in property is a strong advantage not to be taken for granted.

3. Another reason for moving away from further property sector investments would be, that once with a solid property base, take on some more “riskier” speculative investments whether in real estate or outside, with a hope of higher returns. With “safer” investments under one’s belt the capacity for loss on others is greater, having those solid real estate based investments to fall back on. depending on the property portfolio you already have, it may actually be worth adding or trading into more solid property investments. For example adding residential to your commercial property portfolio or vice versa. Check out our article on Taking Control of Risk.

4. With a solid bedrock in the portfolio, you are then in a good position to look at buying share equity into a property development company, or perhaps acting as a secured lender via a fixed-term mini-bond. This changes your landscape as you need to be adept at researching property businesses and carefully analysing the legal structure around the agreement you enter into. An upside is that entry is straightforward and exit is after a fixed term, usually without transaction cost. The danger of being too easy, is that there is no obligation for you to carry out full due diligence. But in my experience it is absolutely vital you do so.

5. So how do you safety-check a successful, growing, ambitious property developer before investing? Analyse their business plan, their accountability and their track record. Are they serious about growth and highly capable of achieving it? That’s down to careful recruitment of key personal in all areas including finance, a sound growth strategy combined with the core property development expertise, a board of repulatble directors and equal skills at bringing the right key people on board.

6. A prudent developer balances its portfolio with a mixture of lower and higher yielding investments and a mixture of short, medium and longer-term maturities from investors like you to maintain the appropriate balance between risk and return. 

7. This balance for a small/medium sized property developer can be realised by simultaneous involvement in two or more of Commercial Retail and Industrial developments, Hotel & Hospitality sectors and build-to-rent residential. It’s pretty easy to investment in multiple such companies especially wise when there is a healthy diversity between the different company’s operations, all within the world of property we know and (deep down!) love.

[Report] Northern UK Property Day with Stephen Beech & Beech Holdings (Manchester)

Yesterday’s viewing trip to Manchester was a real eye-opener. The team at Beech Holdings (Manchester) are preparing to replicate their extraordinary success in converting old office buildings in central Manchester into comfortable eco-friendly apartments.  

Stephen Beech has built a personal property portfolio worth over £23 million using this same approach. He began on a small scale by purchasing terrace housing, keeping the exterior intact, building an interior frame and extending upwards to convert each into 4-6 apartments.

The vast majority of these apartments were fitted with sophisticated energy saving devices such as solar panels (in the early days), energy-efficient windows and warm air heat exchanges. The usual rental model for these types of apartments in Manchester are all-inclusive, so whilst Stephen was making a positive contribution to saving the earth’s resources, he was also able to undercut other landlords on rental charges and still get a better profit margin.

The way to really succeed in property? Simple innovative ideas – put into massive action.

A smart move, since Stephen Beech now has around 450 personal properties bringing in over £1 million a year in rental income, and his business model has scaled up beautifully in Manchester to an almost industrial size. The planning authorities in Manchester are keen to renovate existing empty office buildings and are favouring this over new-build as a matter of policy. 

Beech Holdings (Manchester) is set to dominate Central Manchester

Beech Holdings (Manchester) is very much in the ascendancy. They have ten office conversion projects in various stages of planning, with a further seven identified for the near future. Pictured above is one of these ten developments about to begin, on Waterloo Street in the city centre.

Beech is looking to raise £6 million in crowd sourced funds to finance the purchases, and has already achieved £2.5 million raised from private individuals in just 3 months. We are inviting qualified individuals to take part starting from £20,000 invested for 5 years and in return receive annual interest on10%, paid quarterly. This is a great return on a passive investment and is backed by first charge on the properties, as well as commercial and personal guarantees. This is clearly a property investment with security far greater than “going it alone” in the buy-to-let world.

So why should Beech bother with relatively small investors like us?

You may well ask why Stephen is going to the trouble of raising £6 million of funds this way. Why not go to the banks or sell some of his apartments? Simple reasons:

  1. Banks are still not lending sufficiently to large property developers.
  2. When they DO finally agree to lend it’s too late. In Manchester the secret is to beat off the competition quickly and buy with cash.
  3. The other lending option, Bridging Finance, can cost 20-24% annual interest, so recycling this would be very expensive. Would you prefer to pay private investors 10% or a bank 24%?
  4. Why not sell some of the apartments? Stephen could do this but that would be throwing away tracker mortgages at very low rates, and therefore a considerable chunk of his net income.

So opening up to private investors is the natural and obvious solution. Beech gets relatively low cost loans whilst investors enjoy incomes many times greater than a savings account, and much higher than a traditional net rental yield, with none of the hassle. When it comes to investors in his business, Stephen Beech’s philosophy is one of complete openness. Our due diligence process can testify to this – we’re confident that any reasonable investor question will be answered directly – and to their satisfaction. All enquiries and professional due diligence is very welcome. If you’re looking to invest in property or grow your investment portfolio, this has surely got to be worth investigating.

Find out more about investing with Beech Holdings. Download our brochure today.

Which UK City comes top for property investment this year ?

I am constantly researching the UK property market to identify areas of interest for investment. I thought you might like to take a look at the facts below which firmly position Liverpool as the preferred UK city of  investment, above Manchester and London.

Please take a look at the following:

Private Finance Reports

Private Finance’s latest buy-to-let hotspots analysis has revealed that Liverpool is the UK’s top performing city experiencing average rental yields of 6.2% once mortgage costs are taken into consideration. This is not something which is likely to blow over considering Liverpool have held this position since May 2017 whilst Greater Manchester averaged rental yields of 5.9%.

Reference – https://www.propertyinvestortoday.co.uk/breaking-news/2018/1/liverpool-and-nottingham-revealed-as-the-best-location-for-rental-yields?source=newsticker

Which City is Growing Faster?

Across England, Liverpool grew faster than Manchester and London in 2016. Liverpool’s economy grew faster than London, Manchester and any other major British city in 2015/2016, figures show.

Figures released by the Office for National Statistics (ONS) show that Liverpool enjoyed an economic growth rate of 3.1%, faster than any similar major city region in the country.

Reference – https://www.liverpoolecho.co.uk/news/merseyside-economy-fastest-growing-uk-12328312

Liverpool has become the one to watch in 2018: “Liverpool was a strong contender in 2017 but 2018 will really be the year investors take note. Property prices are still low but creeping up slowly, so now is the time for investors to benefit from the strong capital growth predicted over the next 5 years. With the amount of investment being ploughed into the area, particularly the £5.5 billion Liverpool Waters project and £1.8 billion into the Knowledge Quarter,  Liverpool is without a doubt a hotspot for investment.

If you have any questions or want to find out about the latest apartments we have available, please let me know.

Check out our latest top performing Liverpool project – ideal for the hands-free or remote investor…