How to build a property portfolio
Property can be one of the most popular ways to invest money. You can choose to either buy properties to rent out, or purchase homes in need of repair and fix them up to sell for a profit. We recommend you read our guide on the pros and cons of investing in property first.
Building a property portfolio means you have more than one house under your belt, which is of course a long term project. If you're aiming for a property portfolio, we've created this blog to help you succeed in 7 steps.
Step 1 - Determine your aims
What is it you're trying to achieve by building a property portfolio? Decide if it's appreciation in property value, rental income, or a combination of both.
This may seem like an obvious first step, but it's important to completely solidify your aims as it will determine which properties are right for you.
Step 2 - Build sustainably
Your end goal may be to build a portfolio containing multiple properties, but you won't reach this straight away as it takes time. Start off small and build up slowly to minimise your risk.
For your first investment, think about what would work best for you.
For example, if you're buying-to-let, are you going to maintain the property yourself? If so, you'll likely want to buy near to your own home. However if you're getting a third party to maintain the property, you may consider somewhere further away which is known to be a top buy-to-let location.
Step 3 - Start low
Just because a seller is asking for £200k for a property, doesn't mean you have to pay £200k. Remember that there's nearly always negotiations involved so you can try your best to reduce the price you pay.
The sway your negotiations have on the price can be affected by the property market at the time.
If it's a buyer's market, and house prices are falling, you're more likely to be able to get a better price.
If, however, it's a seller's market you may find that you experience lengthy bidding wars.
You can make your first offer for a property several grand lower than the asking price, or even tens of thousands lower in some cases.
It all depends on the property and the market. After all, the worst that can happen is that your offer is rejected, and sometimes you'll receive a counter-offer where you could meet half way.
Step 4 - Ensure a profit
It's easy for some to get carried away after their first property purchase, but remember step 1 - your aims. Ensuring you're making a profit on your portfolio is extremely important, as you could run out of money quickly if you don't keep your eyes open.
Your income from let properties needs to cover the house repayments as well as other costs, while also offering a decent return. If you experience void periods, be prepared for the outgoings in this time period on things like council tax and utilities.
Step 5 - Check on your tenants
Property investment isn't just about the properties, it's also about the tenants living in them. Ensure your tenants are happy with the property, as unhappy tenants could result in expensive void periods more often. Furthermore, if you treat your tenants well, they're more likely to repay the favour and treat the property well.
Step 6 - Be aware of risks
Keep an eye on the ever-changing property market. House prices are always fluctuating dependent on multiple factors such as supply and demand, and politics. Being in the know will help you act quickly should you need to.
Once you grow your property portfolio, you also need to check your debt position. Try to avoid cross-collateralisation - borrowing against the value of several properties at once. If you're unable to meet your repayments, cross-collateralisation may result in you being made to sell a few properties just to pay off one loan. Be careful!
Step 7 - Exit strategy
You specified your aims in step 1, but what about the end result you want to see?
Are you building a rental portfolio to comfortably retire on, or do you want to liquidise your investments in the future? Whichever it is, keep your exit strategy in mind every step of the way so that you can make the right decisions.