Building your own property portfolio in the UK can appear challenging, but the private rental sector is growing rapidly, with private rentals now making up a fifth of all UK households. The prospects for growth are undiminished, with the PRS looking set to expand by another 25% over the next four years.
How to build a property portfolio
Is buy to let a good investment? We take a look at buy to let investment strategies that can help you create a property portfolio.
Building your own property portfolio in the UK can appear challenging, but the private rental sector is growing rapidly, with private rentals now making up a fifth of all UK households. The prospects for growth are undiminished, with the PRS looking set to expand by another 25% over the next four years. This means that one in four households will be looking to rent a privately owned property, so building a property portfolio can offer excellent financial returns.
Starting a property portfolio is the beginning of a major long-term project. To help you avoid the pitfalls and reap the rewards, we’ve created a step by step guide to buy to let investment strategies that will allow you to develop your portfolio in a sustainable and profitable way.
Seven steps towards building a property portfolio in the UK
1. Identify your aims
As with any investment, the first step when investing in property is to consider your financial goals. Is your main concern to grow your capital or are you looking to generate a regular income from investing in buy to let property? Or maybe, like many investors, you are planning to achieve both these aims.
To get off to a good start, it’s important to be clear about your priorities and goals right from the start. Once you are clear about your aims, you will be able to decide what type of property to buy and the way in which you develop your portfolio.
2. Starting small
Generally, it ’s recommended that as a new investor, you should not attempt to build a portfolio of several properties right from the beginning. Instead, you should think about developing your portfolio slowly and 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 the UK.
Do your research carefully before buying. If you intend to manage and maintain the property yourself, then look out for a property within easy reach of the area where you live. On the other hand, if you are happy to leave maintenance and management to a letting agent or another third party, you can look further afield, allowing you to buy properties in areas which you think will prove to be a good investment.
3. Go in with a low offer
Generally speaking, prices are starting to slip back slightly, and many experts predict that prices are likely to drop even further. Property prices are currently being driven down because of low levels of demand, although the picture is not the same across the whole of the UK.
There is definitely a buyers’ market at present so don’t be afraid to make an offer below the actual asking price – the days of bidding wars between purchasers are gone for now. You’ve nothing to lose by this strategy. Even if your offer is turned down, you can always come back with a higher one: it’s better to miss out on the property than to find you have overpaid for it.
4. Keep a close eye on the key metrics
As you begin building up your portfolio, it’s essential to keep track of the key metrics – or key performance indicators (KPIs) as businesses refer to them. Ensure that you are charging a high enough rent to cover your mortgage payments while still leaving a margin for a return on your investment. Don’t forget to factor in enough to allow for periods between tenants when the property will be empty – you will still have to pay council tax on the property.
The best way to do this is to treat your property portfolio like a business right from the start. Decide which are the most important figures to keep an eye on and track them regularly. As you develop your portfolio, you will require this information to support your investments so once again, think of this task just like you would when running any business and make it a regular part of your routine.
5. Look after your tenants
It’s all too easy for inexperienced landlords to neglect the other most important party to the contract – their tenant. It makes good financial sense to keep your tenants happy as this will encourage them to stay longer, minimising the risk of periods when your property is empty. However, it’s also important to choose the right tenant. Check their credit history and references carefully or consider using an agency to do this on your behalf.
6. Take things slowly
Don’t try to run before you’ve learnt how to walk. It pays to be cautious when building a property portfolio for the longer term. Various indicators suggest a degree of volatility in the medium term with regard to both the economy and the property, and it’s essential to keep yourself informed about the latest developments.
It’s also important to bear in mind your debts and mortgages. As you acquire more properties for your portfolio, try to avoid borrowing against more than one property at a time. This is known as cross-collateralisation and should you be in the unfortunate position of not being able to pay your mortgage. You could be forced to sell several properties just to pay off a single loan.
7. Remember your ultimate goal
Lastly, keep an exit strategy in mind.
What’s your ultimate aim in developing your property portfolio? Whether you’re aiming to create a retirement income sustainable in the long term or are planning to sell up eventually and release cash, it’s a good idea to plan an exit strategy and bear it in mind at every stage of the process. Making wise investment decisions will help you to achieve your aims for a prosperous future.