HOW TO START & BUILD A PROPERTY PORTFOLIO
David Barr
December 14th, 2021
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Start your property portfolio today!
Are you looking to invest in your first property and become a landlord? It can be quite overwhelming, the amount of information that is out there can be quite hard to get started. One of the common queries or bits of advice we get asked for people looking to get into it is how exactly they should finance the property.
You might think if you have the cash to buy it outright, that could be the best option, but hold your horses as there are pros and cons to both sides of the coin.
It might seem pretty straight forward but we’ll just explain it anyway, in case you are unaware. In simple terms it is a selection of properties owned by an individual, company or group of people. There’s no set criteria for this, it can be whatever number of properties in any area, and any property type.
So, let’s get started, what are the things to consider, step by step, on starting your property portfolio. We’ve gone through each step and explained it’s importance below:
One of the first things that you actually need to get in order is your finances, it can be expensive to start a portfolio mainly due to the high cost of property but also other factors that can affect the overall cost including stamp duty, income tax, letting agent fees, capital gains tax, ground rent and more!
You’re seriously considering starting your property portfolio, but before you really jump in, you need to figure out what your long term goals are – as this will shape your investment strategy.
You need to make a decision on what you want to get out of this, are you looking to boost your monthly earnings? Benefit from property price growth? Do you want as many tenants as possible to maximise rent? Or would you prefer having less hands on work and less tenants?
Your goals will define how you shape your whole portfolio, so it’s really important!
We can’t stress just how important it is to do your research on the type of property you want to buy and the area. Just like buying a property you would live in yourself, it’s important to research the area as much as possible, you should always look to:
- Look at current market trends for the local area & even go in and speak to estate or letting agents if possible.
- Research the best areas in the UK for the highest yields, so you can get a good return on your investment.
- Use Rightmove, Zoopla & other property tools to research the area in regards to property prices and rental prices to give you a vague idea.
- Get involved with all the chats! There are several forums out there, and people who can help provide advice, such as ourselves.
- Consider what types of tenants you may get, based on where the property is. Is it near a school, local amenities, you want to essentially choose a place where you increase your chances of getting a good tenant.
You might have the money available, but you shouldn’t just jump into buying several properties at once if you have no experience of being an investor. As a new investor there can be quite a lot to get your head around so take it slowly and make sure everything is fully up and running before you jump onto the next one.
As we touched on earlier, you want to buy a property that has your “target tenant” in mind. It’s easy to get wrapped up in all the facts, figures and yields, but you need to actually consider who will be living in the property as you need to ensure that there are minimal void periods and a steady flow of income with little to no issues.
The more properties you manage, the more of your time it’s going to take. It can be a hectic job being a landlord, especially if you have issues with tenants or the property itself. You might want to consider, especially as you increase the size of your portfolio, taking on a property management company to deal with most of the admin and demands, this will of course eat into your profits which is something you have to consider.
Whilst your planning your property investment, or expanding your portfolio, you need to have an exit strategy in mind. This is a plan that you have in place as the end result of your investment, looking at marketing conditions to predict property prices and sell at the right time for the optimum profit.
If you are lucky enough to have enough money to do so, you might want to avoid a Buy to Let mortgage all together. If you’re a cash buyer, you tend to get better deals on the property initially, and you also avoid the mortgage interest payments – meaning the income, after tax, is purely just profit.
You used to be able to take your BTL mortgage payments off VAT as expenses, but that’s no longer the case, so mortgaging investment properties is no longer as lucrative as it used to be.
After you’ve got the basics down, you need to start considering how you move forward and diversify your portfolio. Adding more properties diversifies your risk which is vital, so try get a mix of different types of investments in different areas.
There’s no perfect answer here, no one size fits all. We even spoke about how you can get into property with little to no money.
But realistically, you will need some funds to get you started. If you plan on going the mortgage route, most Buy To Let mortgage providers will ask for about 25% deposit, which allows you to get into property at a much lower entry cost.
Now you’re hopefully at the point you understand how to start your portfolio, and how you can go about building it – but let’s go into a little more depth in to exactly what strategy you might be interested in adopting & remember throughout, diversification is key!
Single Let Residential
This is the most common strategy for investors, it’s investing in a traditional property that’s for residential tenants, also called a single let – simply as it’s a single tenant. It’s one of the best investment strategies as you earn a monthly rental income and generally can hold the property until it gains in value. Here’s a breakdown of a few of the pros & cons of this method:
- It’s the easiest way to get started and requires the least property knowledge
- Residential property always has a significant demand, so it’s not as risky as other methods
- The rental income is consistent and can be good, especially if you choose a high yield area
- You get both rental returns and often capital growth
- It’s not that time consuming, when compared to other types of rentals
- You can get problem tenants, where you have issues with payments and if you get a Buy To Let mortgage, you’ll still be responsible for making the payments to the bank
- You could end up having void periods in between tenants
- It’s considered a longer term investment, it’s not for those who want a quick return
Student Accommodation
A close second on the popularity scale would likely be student accommodation, and it’s pretty much down to the amount of profit that you can make. Student accommodation can give some really high yields, but it also is very seasonal and can be time consuming as a landlord. Here’s a breakdown of the pros & cons:
- The property prices tend to be quite low & yields are high
- It can be a hands off investment
- The rental demand is always high in student areas
- As with single lets, it offers consistent rental income and capital growth
- Slight stereotyping but speaking from experience, students can tend not to treat the property with the greatest of respect, so repairs and maintenance may be required between each set of tenants
- Limited to a single tenant group
- May not get as high capital growth as a standard residential property
HMOs
This is another popular choice, and a good strategy to use, especially to add a bit of diversity to your portfolio if you have only gone for Single Let residential for example. HMO or House of Multiple Occupancy is a property that you can rent out to multiple different tenants where each tenant has their own room but usually there’s a shared communal area.
As always there are some great pros to this, but also a fair few cons to consider:
- The rental yields are extremely high, as you have income from multiple different tenants at once
- If a single tenant stops paying their rent, you still have the backup rental income from all the other tenants so it’s less of a problem than a single let
- A mortgage can be quite difficult to get for a HMO as most providers won’t allow it
- More tenants equals more management time – it’s a time consuming strategy
- There are a few complex tax rules and requirements that you have to deal with when renting out an HMO
Buying, developing, selling
We couldn’t decide whether or not to include this strategy, as it is a valid property investment strategy, but it isn’t one that is going to build your portfolio. We won’t go into as much detail but essentially, this is otherwise known as house flipping, it’s when you purchase a property and develop it to turn a quick profit – time is of the essence.
Commercial Buy To Lets
Commercial buy to lets are also an increasingly popular choice. This is when an investor purchases a commercial building which can be anything from an office or retail space, to a small shop with a flat on top. The appeal of these tends to be that they have long leases making it more of a secure investment than a more traditional buy to let.
As with any investment strategy, there are pros and cons, which we’ll touch on now:
- The leases are usually much longer than residential, meaning it’s far safer and less void periods
- There are tax advantages
- It can take a while to find a tenant
- It can be more costly for the property & the upkeep
- If there’s economic uncertainty, such as Brexit and Covid, the commercial market can get hit pretty hard.
Holiday Lets
This is another viable property investment strategy, holiday lets are when you purchase a property, any property, with the intention of letting it out on a short term basis, typically to people on holiday. This has become increasingly popular with the rise of platforms like Airbnb.
As with any method, holiday lets also have their pros and cons:
- The rental income is far higher than a traditional Buy To Let
- The tax benefits are better
- It’s quite a lot of work to manage the property, with maintenance and cleaning in between tenants
- Getting a buy to let mortgage can be tricky, so there often better for cash buyers
- The property can go empty for long periods, especially if there’s an “off season”
It’s the dream, growing a property portfolio from 1 to 2, 3, 10, 20, 30 & so forth! Whatever type of investment method you choose to achieve that, is completely up to you. That being said, we’ve pulled together a few key tips to ensure you’re able to build your portfolio as quick as possible, with the right caution of course.
1. Buying at the right price at the right time
This is key, to be successful as an investor you need to make sure you are buying property at the right price and right time. Try get a below market value deal, which we can help you with, that returns a good return. Properties get sold for less than what they are worth quite regularly, and if you are able to move quickly, such as being a cash buyer, you’re often in a very strong position to get a fantastic deal.
2. Develop a good cashflow strategy
Sometimes the desire to grow your portfolio as quick as possible can mean you jump at opportunities without really looking and establishing a reliable cash flow. Always make sure you buy and expand your portfolio with logic, sit down and look at the figures and the reliability of those figures.
3. Get a good team – solicitors, brokers, builders, tax advisors
This is absolutely crucial, build relationships with everyone you might need when looking to buy properties. Over time as you continue to buy properties you’ll come across a great solicitor, an efficient mortgage broker, a handy builder, an excellent tax advisor & a reliable surveyor – make sure you keep them as contacts, having people you trust will help you scale far quicker and more efficiently.
4. Bridging finance
In order to move quicker you can utilise a bridging loan, it’s quite a complex topic, but once you get your head around it, when used properly it can really help you accelerate your property portfolio. We recently wrote a guide on using a bridging loan for property purchases.
The biggest thing to consider, and often the biggest hurdle, is that at some point when you’re growing your portfolio you will realise you can’t do it all yourself. You’ll need a great team of contacts around you, and likely need to take a hit on your profits for a management company to start looking after things.
If you take anything from this article however, there are three main considerations that you should look at when starting and expanding your property portfolio:
It’s so important to have a clear goal in mind, stick to it and have an exit strategy – otherwise you can find yourself holding on to the property for far too long, or getting stuck.
Anything can happen, so diversifying your portfolio is so important! Just take COVID for example, student lets or commercial property investors might have had a significant hit to the pocket.
You need to figure out what your time is worth, there is going to be a point in which managing the portfolio is pretty hard work by yourself, especially if you also have a day job.
Start your property portfolio today!
Are you looking to invest in your first property and become a landlord? It can be quite overwhelming, the amount of information that is out there can be quite hard to get started. One of the common queries or bits of advice we get asked for people looking to get into it is how exactly they should finance the property.
You might think if you have the cash to buy it outright, that could be the best option, but hold your horses as there are pros and cons to both sides of the coin.
It might seem pretty straight forward but we’ll just explain it anyway, in case you are unaware. In simple terms it is a selection of properties owned by an individual, company or group of people. There’s no set criteria for this, it can be whatever number of properties in any area, and any property type.
So, let’s get started, what are the things to consider, step by step, on starting your property portfolio. We’ve gone through each step and explained it’s importance below:
One of the first things that you actually need to get in order is your finances, it can be expensive to start a portfolio mainly due to the high cost of property but also other factors that can affect the overall cost including stamp duty, income tax, letting agent fees, capital gains tax, ground rent and more!
You’re seriously considering starting your property portfolio, but before you really jump in, you need to figure out what your long term goals are – as this will shape your investment strategy.
You need to make a decision on what you want to get out of this, are you looking to boost your monthly earnings? Benefit from property price growth? Do you want as many tenants as possible to maximise rent? Or would you prefer having less hands on work and less tenants?
Your goals will define how you shape your whole portfolio, so it’s really important!
We can’t stress just how important it is to do your research on the type of property you want to buy and the area. Just like buying a property you would live in yourself, it’s important to research the area as much as possible, you should always look to:
- Look at current market trends for the local area & even go in and speak to estate or letting agents if possible.
- Research the best areas in the UK for the highest yields, so you can get a good return on your investment.
- Use Rightmove, Zoopla & other property tools to research the area in regards to property prices and rental prices to give you a vague idea.
- Get involved with all the chats! There are several forums out there, and people who can help provide advice, such as ourselves.
- Consider what types of tenants you may get, based on where the property is. Is it near a school, local amenities, you want to essentially choose a place where you increase your chances of getting a good tenant.
You might have the money available, but you shouldn’t just jump into buying several properties at once if you have no experience of being an investor. As a new investor there can be quite a lot to get your head around so take it slowly and make sure everything is fully up and running before you jump onto the next one.
As we touched on earlier, you want to buy a property that has your “target tenant” in mind. It’s easy to get wrapped up in all the facts, figures and yields, but you need to actually consider who will be living in the property as you need to ensure that there are minimal void periods and a steady flow of income with little to no issues.
The more properties you manage, the more of your time it’s going to take. It can be a hectic job being a landlord, especially if you have issues with tenants or the property itself. You might want to consider, especially as you increase the size of your portfolio, taking on a property management company to deal with most of the admin and demands, this will of course eat into your profits which is something you have to consider.
Whilst your planning your property investment, or expanding your portfolio, you need to have an exit strategy in mind. This is a plan that you have in place as the end result of your investment, looking at marketing conditions to predict property prices and sell at the right time for the optimum profit.
If you are lucky enough to have enough money to do so, you might want to avoid a Buy to Let mortgage all together. If you’re a cash buyer, you tend to get better deals on the property initially, and you also avoid the mortgage interest payments – meaning the income, after tax, is purely just profit.
You used to be able to take your BTL mortgage payments off VAT as expenses, but that’s no longer the case, so mortgaging investment properties is no longer as lucrative as it used to be.
After you’ve got the basics down, you need to start considering how you move forward and diversify your portfolio. Adding more properties diversifies your risk which is vital, so try get a mix of different types of investments in different areas.
There’s no perfect answer here, no one size fits all. We even spoke about how you can get into property with little to no money.
But realistically, you will need some funds to get you started. If you plan on going the mortgage route, most Buy To Let mortgage providers will ask for about 25% deposit, which allows you to get into property at a much lower entry cost.
Now you’re hopefully at the point you understand how to start your portfolio, and how you can go about building it – but let’s go into a little more depth in to exactly what strategy you might be interested in adopting & remember throughout, diversification is key!
Single Let Residential
This is the most common strategy for investors, it’s investing in a traditional property that’s for residential tenants, also called a single let – simply as it’s a single tenant. It’s one of the best investment strategies as you earn a monthly rental income and generally can hold the property until it gains in value. Here’s a breakdown of a few of the pros & cons of this method:
- It’s the easiest way to get started and requires the least property knowledge
- Residential property always has a significant demand, so it’s not as risky as other methods
- The rental income is consistent and can be good, especially if you choose a high yield area
- You get both rental returns and often capital growth
- It’s not that time consuming, when compared to other types of rentals
- You can get problem tenants, where you have issues with payments and if you get a Buy To Let mortgage, you’ll still be responsible for making the payments to the bank
- You could end up having void periods in between tenants
- It’s considered a longer term investment, it’s not for those who want a quick return
Student Accommodation
A close second on the popularity scale would likely be student accommodation, and it’s pretty much down to the amount of profit that you can make. Student accommodation can give some really high yields, but it also is very seasonal and can be time consuming as a landlord. Here’s a breakdown of the pros & cons:
- The property prices tend to be quite low & yields are high
- It can be a hands off investment
- The rental demand is always high in student areas
- As with single lets, it offers consistent rental income and capital growth
- Slight stereotyping but speaking from experience, students can tend not to treat the property with the greatest of respect, so repairs and maintenance may be required between each set of tenants
- Limited to a single tenant group
- May not get as high capital growth as a standard residential property
HMOs
This is another popular choice, and a good strategy to use, especially to add a bit of diversity to your portfolio if you have only gone for Single Let residential for example. HMO or House of Multiple Occupancy is a property that you can rent out to multiple different tenants where each tenant has their own room but usually there’s a shared communal area.
As always there are some great pros to this, but also a fair few cons to consider:
- The rental yields are extremely high, as you have income from multiple different tenants at once
- If a single tenant stops paying their rent, you still have the backup rental income from all the other tenants so it’s less of a problem than a single let
- A mortgage can be quite difficult to get for a HMO as most providers won’t allow it
- More tenants equals more management time – it’s a time consuming strategy
- There are a few complex tax rules and requirements that you have to deal with when renting out an HMO
Buying, developing, selling
We couldn’t decide whether or not to include this strategy, as it is a valid property investment strategy, but it isn’t one that is going to build your portfolio. We won’t go into as much detail but essentially, this is otherwise known as house flipping, it’s when you purchase a property and develop it to turn a quick profit – time is of the essence.
Commercial Buy To Lets
Commercial buy to lets are also an increasingly popular choice. This is when an investor purchases a commercial building which can be anything from an office or retail space, to a small shop with a flat on top. The appeal of these tends to be that they have long leases making it more of a secure investment than a more traditional buy to let.
As with any investment strategy, there are pros and cons, which we’ll touch on now:
- The leases are usually much longer than residential, meaning it’s far safer and less void periods
- There are tax advantages
- It can take a while to find a tenant
- It can be more costly for the property & the upkeep
- If there’s economic uncertainty, such as Brexit and Covid, the commercial market can get hit pretty hard.
Holiday Lets
This is another viable property investment strategy, holiday lets are when you purchase a property, any property, with the intention of letting it out on a short term basis, typically to people on holiday. This has become increasingly popular with the rise of platforms like Airbnb.
As with any method, holiday lets also have their pros and cons:
- The rental income is far higher than a traditional Buy To Let
- The tax benefits are better
- It’s quite a lot of work to manage the property, with maintenance and cleaning in between tenants
- Getting a buy to let mortgage can be tricky, so there often better for cash buyers
- The property can go empty for long periods, especially if there’s an “off season”
It’s the dream, growing a property portfolio from 1 to 2, 3, 10, 20, 30 & so forth! Whatever type of investment method you choose to achieve that, is completely up to you. That being said, we’ve pulled together a few key tips to ensure you’re able to build your portfolio as quick as possible, with the right caution of course.
1. Buying at the right price at the right time
This is key, to be successful as an investor you need to make sure you are buying property at the right price and right time. Try get a below market value deal, which we can help you with, that returns a good return. Properties get sold for less than what they are worth quite regularly, and if you are able to move quickly, such as being a cash buyer, you’re often in a very strong position to get a fantastic deal.
2. Develop a good cashflow strategy
Sometimes the desire to grow your portfolio as quick as possible can mean you jump at opportunities without really looking and establishing a reliable cash flow. Always make sure you buy and expand your portfolio with logic, sit down and look at the figures and the reliability of those figures.
3. Get a good team – solicitors, brokers, builders, tax advisors
This is absolutely crucial, build relationships with everyone you might need when looking to buy properties. Over time as you continue to buy properties you’ll come across a great solicitor, an efficient mortgage broker, a handy builder, an excellent tax advisor & a reliable surveyor – make sure you keep them as contacts, having people you trust will help you scale far quicker and more efficiently.
4. Bridging finance
In order to move quicker you can utilise a bridging loan, it’s quite a complex topic, but once you get your head around it, when used properly it can really help you accelerate your property portfolio. We recently wrote a guide on using a bridging loan for property purchases.
The biggest thing to consider, and often the biggest hurdle, is that at some point when you’re growing your portfolio you will realise you can’t do it all yourself. You’ll need a great team of contacts around you, and likely need to take a hit on your profits for a management company to start looking after things.
If you take anything from this article however, there are three main considerations that you should look at when starting and expanding your property portfolio:
It’s so important to have a clear goal in mind, stick to it and have an exit strategy – otherwise you can find yourself holding on to the property for far too long, or getting stuck.
Anything can happen, so diversifying your portfolio is so important! Just take COVID for example, student lets or commercial property investors might have had a significant hit to the pocket.
You need to figure out what your time is worth, there is going to be a point in which managing the portfolio is pretty hard work by yourself, especially if you also have a day job.
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