Are you sitting on a potential property portfolio?

If your rental property has risen in value and you now have a good amount of equity tied up in it, you could be sitting on the beginnings of a successful property portfolio.

If you’re inclined to leave the equity in the property as a safety net or savings plan, then you’re probably not going to make it much past your first property.

But owning a rental property is more like running a business than you might think. And a successful business is all about identifying opportunities to expand.

Taking spare equity from one property to purchase another property is called gearing.

With most lenders, all you need in order to purchase a buy-to-let property is a 15% deposit, and the rent must be able to cover the mortgage payments. Providing you are meeting these criteria, any extra equity tied up in the property is effectively going to waste.

The first stage in working out whether you can afford to expand your property empire is about finding out how much your existing house is worth. You can usually get an estate agent to judge a property’s market value, however you may want more conclusive proof that you are sitting on a goldmine and choose to get a bank valuation.

Once you know the value of your property you are in a position to work out how much equity can be taken out in a re-mortgage, with enough left to meet the bank’s requirements.

If you’ve been letting a property out for a while and kept the rent the same, you may be able to increase the rent if the area average has increased. Check with your local lettings agents to see what the going rate for your type of property is.

Your budget for a new property will be set by the amount of equity you can extract from existing property. This should be enough to cover the 15% deposit, buyers’ legal fees, a survey, any renovations or decorating and any furnishings or white goods.

You can then go ahead and find a new property that meets your budget and all the right criteria for letting – location, location, location.

Certain lenders offer special mortgages for property portfolios. These often enable the risk to be spread across all or a few of an investor’s properties to maximise the money invested. This option can often be cheaper than having lots of separate mortgages.

Insurance can also be bought for multiple properties. This reduces your premiums across the board, allowing you to take on more relevant covers such as tenant default and legal expenses which owners of property portfolios are more likely to need.

Websites such as Simply Business offer a choice of buy-to-let mortgages and landlord insurance for multiple properties, from leading providers.