If you take the right approach, building a property portfolio can be a profitable and long-term investment.
Read our top tips on how to build a portfolio, from finances and having a long-term plan, to what type of property to buy and choosing the right tenants.
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When you start building your portfolio, the first step you need to think about is what you’re aiming to achieve. Are you looking to benefit from property price growth over the long-term? Or are you hoping to boost your earnings through rental income?
It’s likely that you’ll be looking to achieve a combination of the two. Asking yourself these questions can help you to work out what kind of property you want to buy. For example, do you want to rent to as many tenants as possible to maximise income even though it could be more stressful?
Understanding the route you want to take when building your portfolio helps you to create a long-term plan and reduce the chances of making expensive mistakes.
Once you’ve worked out what type of property you want to buy and the kind of portfolio you want to build, you’ll need to do some thorough research.
This can help you to identify the right property in the right area that has the best chance of achieving your goals.
Here’s an overview of some of the things you can do:
Once you’ve identified some suitable properties and locations, you’ll need to start looking at rental yields to work out what your annual return will look like.
Our free rental yield calculator explains everything you need to know about the kind of return you can expect from each investment.
It’s not generally recommended that new investors build a property portfolio with multiple properties at the same time. Instead, the best way to build a property portfolio is to start small and build sustainably.
You’ll need to choose your first investment wisely. For example, would you prefer a property close to where you live so you can keep on top of maintenance? Or are you happy to go further afield and outsource portfolio property management to a letting agent?
Once your first property is up and running, and hopefully making a good return, you can start to think about expanding your portfolio.
As a property investor, you’ll be looking for the best value for money so you can maximise your return on investment.
This means when you find a property you want to buy, it can help to have a strategy, such as a maximum price you want to pay (dependent on the potential yield on offer).
If you want to get things done quickly, you may want to offer the asking price (or slightly above). If you’re not in a rush, offering below asking price could get you a bargain.
When working out your strategy, you’ll need to consider the seller’s circumstances – are they in a chain? Do they want (or need) to move quickly?
Your plan of action may also be influenced by whether you’re in a buyer’s or seller’s market.
In a buyer’s market, demand will be low so you may have more options and opportunity to offer below asking price.
In a seller’s market, there will be more competition, so you’ll need to act quickly and may have to pay slightly more than you initially planned.
Another way you can pick up a cheaper property investment is buying ‘below market value’ (BMV), which is usually a property that needs a lot of work but may have good investment potential. You’ll often find these properties at auction.
When starting your property portfolio, make sure that you keep an eye on your finances and goals:
Managing your finances is key if you want to grow your portfolio further. Keeping track of all your financial information will allow you to work out when you’re in a position to buy your next property.
Once you’ve bought a property, choosing the right tenants is crucial if you want to build a successful property investment portfolio.
If you have the best tenants for your property, they’re more likely to stay for longer and treat the property as their own. This can reduce the time your property is empty and earning no income (known as a void period), as well as your maintenance and repairs costs.
You’ll also need to make sure your property is compliant and carry out a range of tasks before your tenants officially move in. Our pre-tenancy landlord checklist can help you get started.
Once your tenants have moved in, it’s important to maintain a good relationship. You can do this by:
Meanwhile, our property inspection checklist can help you to make sure your property is being looked after for the duration of the tenancy.
By covering these bases, you can increase your chances of getting a solid return on investment and being able to expand your portfolio sooner.
Don’t run before you can walk. If you want to build a property portfolio, you need to be cautious.
You’ll need to keep track of how the property market and the wider economy are performing. For example, if property prices drop, it could be a good time to invest and a bad time to sell.
You’ll also need to pay attention to your debt position. If you purchase more properties, it’s not usually advisable to borrow against the value of multiple properties at the same time. This is because you could end up having to sell several properties if you can’t afford your mortgage repayments.
It’s beneficial to speak to a mortgage adviser who can explain the different financing options available to you. This can help you to decide on the right buy-to-let mortgage and whether you need to remortgage your existing buy-to-let mortgage to expand your portfolio.
Finally, don’t lose sight of your ultimate goal. However, you’ll need to be prepared to pivot and adapt as the rental market moves quickly.
Here are some questions to ask yourself about your long-term goals:
By keeping your long-term plan and potential exit strategy in mind, you can help to make sure that you make sensible investment decisions and build a successful portfolio.
What are your top tips for building a property portfolio in the UK? Let us know in the comments below.
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