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How to Build a Property Portfolio

A property portfolio is a collection of assets in the real estate sector – whether family homes, student houses or apartments. Currently, rental growth in the UK is rising at its fastest rate in 13 years and average rents are 4.6% higher than the previous year, reaching £968 a month. With demand for rental property outstripping supply, there’s a general upward pressure on rents, making now a great time to be a landlord or begin to build your property portfolio.

While every real estate portfolio will be unique, creating a portfolio tends to follow the same general pattern. Whether you want to know how to build a property portfolio from nothing, or want to expand your investments to become a portfolio landlord, in this article, we take a look at some of the benefits of building a property portfolio and how to create one for success.

Why Create a Real Estate portfolio?

What is the purpose of a property portfolio? Building a real estate portfolio is a way to help you achieve your financial goals. While a single investment property can deliver a solid stream of monthly passive income, it’s unlikely that you will achieve financial freedom through one property alone. Owning multiple investment properties with multiple income streams and opportunities for growth in capital gains can set you up financially for the future, whether your goal is early retirement or to build a profitable business.

building a property portfolio

How to Start a Property Portfolio

  • Determine Your Investment Goals and Have a Strategy

The first step in how to build a property portfolio is to have a clear vision of what you want your property portfolio to help you achieve, whether you are looking for a reliable source of monthly passive income or to build a business that will help you achieve financial freedom. Your end goal will determine the path you take and what your investment strategy will look like, and it’s possible to pivot or adjust your goals along the way. It’s prudent to lay out a 1-year, 5-year and even 10-year strategy with your investment plans to incorporate buying, selling and borrowing to have the clearest possible vision towards your success.

There are multiple ways to invest in property – whether buy-to-let, buy-to-sell or student accommodation – and multiple tenant demographics to target, so it’s important to find the strategy that is right for you based on the time and knowledge you have to invest and the lifestyle you want to achieve from your investment.

Tips for Building a Property Portfolio

  • Start Small

When it comes to building a property portfolio, it’s important to make sure you get off to a good start. Ensuring you have a solid foundation before you scale will make consecutive investments easier down the line. Your first property can arguably be the most important, and it’s worth investing time and research to ensure you find something with good rental yields and strong potential for capital growth. Few landlords create a portfolio by purchasing multiple properties from the start – the most common approach is to start small then scale gradually. When it comes to your first property, consider elements like whether you want the property to be close by so you can manage it for yourself, or whether you’ll hire a property management company to handle the day-to-day for you.

  • Do Your Homework

With any investment, make sure you thoroughly conduct your research. Look for up and coming areas where you may be able to get a relatively cheap property but with strong capital gain projections – areas with population growth and where regeneration and investment are transforming the area tend to be a good place to start. You’ll need to look into tenant demand too. Is your property in an area where there is demand from young professionals or a strong student market that gives you a steady stream of tenants? To get you started, take a look at our recommendation for some of the best buy-to-let- areas in the UK right now.

  • Consider Cash Flow

It’s important to ensure that any investment property has a higher rental income than expenses. Making sure that your income is higher than your expenditure will give you equity to reinvest more quickly for faster growth. In your cash flow projections, you should consider if you can handle any void periods and what should happen in the event of unexpected costs like repairs to ensure you have a contingency plan.

 property investing tips

Top Tips for Building a Property Portfolio  

  • Track Important Metrics

If you’re wondering how to build a property portfolio once you have one or two properties under your belt, one of the most important things in your growth journey as a portfolio landlord is keeping track of metrics. Does your current rental income cover your mortgage repayments, are you making a reasonable return on your investment, do you have enough funds to cover potential void periods? Tracking these metrics will give you an overview of how your portfolio is performing and alert you to any problems.

Once you find a property you think will make a good investment, you’ll need to calculate rental yield and any outgoing costs like tax, mortgage payments, maintenance and licencing fees to make sure your investment puts you in the black. As a general rule, a good rental yield sits at around 5%, and a higher rental yield of something closer to 8% would give you a contingency budget should costs increase with little warning. You can calculate your rental yield by dividing the rental income by the price paid for the property to get a percentage. You can read more about rental yields in this article.

  • Keep Tenants Happy

It’s important to do adequate due diligence on your tenants to limit the number of issues you might have with a property. Void periods without rental income are one of the biggest risks for investors, and if you have several vacant properties at the same time, your cash flow can quickly spiral out of control. Keeping tenants happy can ensure they stay longer and sign on for longer rental periods and minimise your void periods. However, the best way to avoid void periods is by thoroughly undertaking research into the area you’re investing in to make sure there is adequate rental demand. You can also undertake improvements on your property to make it more desirable than other properties in the market.

  • Diversifying Your Property Portfolio

In determining how to build a property portfolio, one question to consider is whether you want to diversify the types of property you invest in. At first, consider the type of property you’d like to deal with and make an effort to stick with the same type in the early days of your investing. Staying local can be advantageous, as you will be familiar with the market, the area and the types of tenants you want to target. Similarly, specialising in one particular property type can help you build your knowledge and make you more comfortable and confident in your investments.

On the other hand, diversifying your portfolio can not only help to grow your portfolio more quickly, but also spread some of the risk. If you invest in a few properties in the same area, but it doesn’t grow for several years, your equity to purchase more properties may be limited, you may also be looking at empty properties or limited monthly rent. On the other hand, if you have a few properties in different areas, even if a couple of the areas don’t grow, growth in one of them will give you access to equity to reinvest into your property portfolio for faster returns.

 How many Properties is Considered a Portfolio?

After securing your first property, over time you can begin to grow your portfolio by buying additional properties. How many properties is considered a portfolio? If you have four or more mortgaged properties, you’re classed as a portfolio landlord. In the UK, 38% of landlords own between two and four properties, and 17% of landlords own five or more properties. 45% of landlords have just one rental property.

 portfolio landlord

How to Make a High-Performing Property Portfolio?

  • Have a Long-Term Strategy and Set Goals

As a portfolio landlord, it’s important to put in place a clear set of goals and financial aims. Property investors focus on two things in particular: capital appreciation and sustainable rental income. Before purchasing any property determine your goals and make a realistic timeline for achieving them to keep your business on track. While you might have a long-term goal in mind, be sure to update and adjust it regularly in order to stay motivated and adaptable to any changes in the market or your situation.

  • Be Prepared

Always remember your end goal and have an exit strategy – whether you’re looking to flip properties for immediate wealth generation or want to generate comfortable and sustainable incomes for a solid income stream – it’s always a good idea to have a plan on how you’ll sell your properties.

Consider Off-Plan Properties

Off-plan properties are a great way to help investors to secure a good deal. Off-plan properties are those still in the investment stage, and usually, if you invest in the right area with rising prices and strong rental demand, you can make a strong return. Off-plan properties can usually be had for below-market rates. Developers often offer discounted prices to attract buyers at the start of a development or are willing to negotiate on the asking price. In some areas, it’s possible to find an off-plan property for 20% – 50% below market value. If you’re a portfolio landlord, you’ll have to wait a while for the property to be completed, but considering the savings and popularity of new builds with tenants, there are great gains to be made. Find out more about the benefits of investing in off-plan properties in this article.

If you’re curious about how to build a property portfolio, whether you’re starting from your first property or adding to those you already own, this article has outlined some of the factors you need to consider. Building a successful property portfolio is about thoroughly conducting research to make sure you’re investing in an area with good rental yields and potential for capital gains, tracking the right metrics to make sure your properties are performing and setting goals in line with your target and the lifestyle you want to achieve. To find out more about how to build a property portfolio, get in touch with our experts.