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Diversification a Must For Investment portfolio

diversification of portfolioA strong portfolio is every investor’s dream but can strength ever be attained without laying emphasis on property diversification? What if a particular market bears the brunt of negative consumer sentiment or a natural phenomenon? Let us say you bought a dozen waterfront properties only to see your dreams ‘washed away’ by a tsunami and subsequently poor word of mouth against such properties.

Diversification of property is the key

Or else imagine all your properties taking a hit at the same time because they were in the mining zone and were left completely unsupported in the wake of the mining bust. Why? Simply because there wasn’t a multiple industry environment to support the local economy. These two examples strengthen the need for diversification of property portfolio.

Playing out rental yield against capital growth

In fact, shrewd investors position their properties in a way that plays out rental yield against capital growth. A beautiful equilibrium between negatively geared properties (capital gains) and positively geared properties (cash flow) helps them to create a mini real estate empire for themselves.

Your portfolio should be spread wide….should not be deep and concentrated

Oftentimes, we are being persuaded by self-proclaimed property pundits how a particular area just cannot go wrong and yet time proves that even such areas are not insured against counter-cyclic plateauing. This is why you are advised to spread the arc of your portfolio as wide as possible. Even if one particular area suffers a crunch, others may appreciate in value, compensating for the loss made on the area (or neighbourhood) lying low.

A balance of detached houses and units

Another thing is that you maintain a balanced approach between detached houses and units. Every now and then you will hear how the traditional favourites- detached houses- are still going strong but at the same time there will be noises aplenty about change in strata bylaws, higher approvals for apartment units, among other things.

The way the game plays out, you need to have a mix of both in the kitty; if only to be more enticing to the prospective buyers.

How have you chosen to diversify your property portfolio?