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This is part one of our two-part article, ‘How to Diversify a UK Expat Property Portfolio’. To read part two, click here.
It’s 2023 and with the new year comes new goals and a renewed desire to make important moves for the future. For many UK expats and foreign nationals, buying a UK investment property is one such goal. For those UK expat and foreign national investors who are looking to both add to their income and build for their futures, building a property portfolio is one of the most effective ways to achieve these two goals. Owning a property portfolio is a great method for investment as it’s very tangible for investors – they can control the investment and it is a safe and secure investment tactic. But, it’s important to manage this portfolio correctly and make sure that the portfolio is as diverse as possible.
Why Diversify?
Diversifying a property portfolio is an important practice for any UK expat or foreign national investor who owns a number of properties. In short, diversification is the process of spreading money between different investments to reduce the risk of the overall investment portfolio.
‘While UK expat and foreign national investors could diversify their portfolio by investing in a different sector – for example, the commercial property sector – we often advise our clients to focus mainly on the residential sector, as it is a very stable sector for investment’ says Stuart Marshall. ‘The reason for this is that supply is always constrained, as the number of people outnumbers the number of properties available, while demand is always strong, as everyone needs somewhere to live. For the purpose of diversifying an investment property portfolio, there is enough diversification to be had within the residential sector. This comes from a range of sub-sectors, including private rental housing, social housing, and student accommodation. This can also come from the location of the investment, the type of property, or the type of tenant.’
Diversifying with Location.
Diversifying the location of an investment is one way for UK expat and foreign national investors to reduce risk. While some areas might be performing strongly, an investor who buys all their properties in this area will have their entire portfolio suffer if something happens in that area or there’s a change in the local market. For example, a major employer leaving an area is likely to affect the tenant demand for that area.
In practice, diversifying the location of an investment portfolio can also function as an investment strategy in itself, rather than working just to minimise risk exposure. For example, a UK expat or foreign national investor who buys a property in London could use that same deposit to buy multiple, more affordable properties in another area. While this is diversifying the portfolio (in as much as the investor has purchased a number of diverse properties rather than one in a single area), it is also an investment strategy in itself as the UK expat or foreign national investor will be paying down the capital value of two properties simultaneously, while also seeing two lots of rental earnings.
At the moment, city centre areas are proving to be the most popular locations for investment, with tenants wanting close proximity to social venues like bars, clubs and restaurants, while also maintaining a close distance to employment centres. While London and Manchester might be the obvious choices for UK expat and foreign national investors, there are so many excellent city-centre locations that are growing in popularity for tenants and investors. For example, Leeds, Sheffield, Birmingham, Liverpool and Nottingham have all proved hugely popular and promise both excellent rental yields and strong capital growth projections for the future. There has been a recent rise in tenant demand in affordable urban areas outside of the city centre. These areas often have good employment opportunities as well as great commuter links to big cities. For this reason, Bradford, Crewe and Coventry currently have some of the highest levels of demand in the UK (60.7%, 47.3% and 46.8% respectively). An expert UK expat or foreign national mortgage broker can help to identify some areas which might be of interest for the specific investment goals of a UK expat or foreign national investor.
Diversifying the Property Type and Tenant Type.
Different types of property will have different strengths for every UK expat or foreign national investor, while also inevitably appealing to different types of tenant. Diversifying the type of property in a portfolio will be beneficial as it means that UK expat and foreign national investors are somewhat insulated from a big shift in consumer preferences. ‘In recent times, we’ve seen a number of changes that illustrate exactly this sudden shift in consumer preference. For example, prior to the events of the Coronavirus pandemic, family homes with gardens were not considered to be desirable rental properties. However, the effect of multiple lockdowns drove a desire for outdoor space and bigger properties, meaning flats fell out of favour and larger properties with gardens were the hot ticket. There was also a reduced need to be near social or professional hubs, which meant that properties outside of urban areas were more realistic. Post-pandemic, high energy prices and a desire to return to the city centre for both work and social reasons have meant that flats are back in favour. This highlights the importance of diversifying the type of property for UK expat and foreign national investors, as different types of property will be more or less popular at different times.’
Diversifying the type of tenant is also a good idea, as it will insulate UK expat and foreign national investors from issues affecting a particular type of tenant. However, the tenant type is usually a good way to dictate the type of property, as the ideal tenant will determine certain attributes of the property. Alternatively, if a UK expat or foreign national investor has a particular type of property that they are looking to invest in, then this can inform the type of tenant they are likely to attract. ‘Typically, we talk to our customers about the way in which they want to diversify and this will determine other things about the property they need to purchase. At the moment, for example, if a UK expat or foreign national wants to attract a young professional tenant, they will be better off investing in a city centre flat. This is good news for many UK expat and foreign national investors as these types of property are incredibly mortgage-friendly and allow investors to utilise the range of quality UK expat and foreign national mortgage products available at the moment.’
Liquid Expat Mortgages
Ground Floor, 3 Richmond Terrace,
Ewood, Blackburn
BB1 7AT
Phone: 0161 871 1216
www.liquidexpatmortgages.com
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sergio@ulyssesmarketing.com
+44 161 633 5009
