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Expanding your property portfolio can be a daunting prospect– but with the private rented sector growing at record rates, it can be a highly valuable financial decision. Plus, with the expert advice from our lettings team, you’ll be in safe hands throughout the process.
Your property portfolio is the collection of property investments you own. This could be yours personally, or owned by a group or a company. There are many benefits to owning a property portfolio as opposed to either owning no properties or owning just one investment property.
It can be hard (not impossible) to achieve financial freedom from just one property alone. Your first investment property is a great step towards achieving this financial goal. By spreading your risks and multiplying your potential income, your will in turn become less reliant on pensions and other less reliable sources of income.
Whether you want to reach early retirement or whether you have a significant wealth goal, owning multiple investment properties with multiple rental incomes can really set you up financially.
By having multiple properties on the market, you become less reliant on always having an occupied property – obviously in an ideal world you would have 10 / 10 properties rented out to tenants 100% of the time, but this isnt always the case.
By diversifying and by having multiple properties, it means that you can reap the multiple benefits – increase rental income, better cash flow, more experience and more.
To build your property portfolio, you need to purchase your first (or second) property. Ultimately, the trick to this property strategy is to always have a plan for bringing money back into your pot so that you can re-invest it and grow your portfolio.
Making your first purchase should be carefully thought out and considered. How you go about purchasing your property completely depends on your aims and goals. Some investors don’t like leverage or finance so it’s impossible to say yes get a mortgage.
The first step with any property investment is to think about your financial aims. Are you primarily interested in capital appreciation? Or do you want to invest in property that will provide a sustainable rental income? Or, perhaps most likely, are you looking for a combination of the two?
Your answers to these questions will help to determine your first property purchase, and the way in which you build your portfolio. In order to start on the right foot, you need to have your goals and priorities in place from the very beginning.
It’s not generally recommended that new investors build a property portfolio with multiple properties from the off. Instead, you should think about starting small and building sustainably.
Choose your first investment wisely. Would you prefer a property close to where you live, in order to be able to keep on top of maintenance? Or are you happy to try further afield and entrust management tasks to a third party? For help choosing, try our guide to the best buy-to-let areas in Leicester.
It’s currently a buyer’s market for property, and many analysts predict that prices will fall further. Gone, at least for now, are the days of lengthy bidding wars.
Don’t be scared to offer below the asking price – the worst that can happen is that you’re turned down. Increasingly, property is being driven down due to a lack of demand, although bear in mind that the picture for pricing is not even across the UK.
As you start your property portfolio, make sure that you keep an eye on your key metrics – what businesses would call their KPIs. Does your rental income cover your mortgage payments and other outgoings, while still providing a reasonable return? Are you managing void periods sensibly?
Identify the most important numbers that you need to track, and make sure that you keep a constant eye on them. You need data to back up your investments as you grow your portfolio – again, treat this part of the exercise just as you would if you were running a business.
All too often, it can be tempting for landlords starting and building a portfolio to forget about the most important other party – the tenant. You need to work hard to ensure that your tenants are satisfied, both in order to maximise tenancy lengths and to minimise void periods.
However, you also need to keep on top of the business side of the relationship, and that begins with choosing the right tenant. If you’re doing this yourself, rather than through a letting agent, you might find our tips for choosing the right tenant helpful.
Don’t run before you can walk. If you want to build a long-term property portfolio, you need to be cautious. There is a range of indicators suggesting medium-term volatility in both the property market and the economy more generally, and you need to keep abreast of these. Check out our blog on the best opportunities for landlords in the buy-to-let market.
But you should also pay attention to your debt position. As you grow into multiple properties, try to avoid cross-collateralisation (also known as borrowing), borrowing against the value of multiple properties at once. If the worst happens and you can’t service a debt, cross-collateralisation can mean that you’re forced to sell multiple properties in order to pay off just one loan.
Finally, make sure you understand your ultimate goal.
What’s the ideal end result for your property portfolio strategy? Are you looking for a sustainable retirement income? Or do you intend to liquidise your investments at some point in the future? By keeping your exit strategy in mind at every step, you can help to ensure that you make sensible investment decisions throughout.
Remember, this is just a guide. For more information on starting a property portfolio, you should get in touch with our expert letting agents in Leicester.