Building a Property Portfolio
When it comes to maximising your returns from property investment, the natural route is to start building a property portfolio.
While a property portfolio is technically any collection of property assets, it’s usually assigned to portfolios of multiple property types in various locations.
Making your first investment and then scaling that with additional portfolio properties is a long-term project but below we explore how you can build a property portfolio in a sustainable and effective way.
Ready to Build a Property Empire? Download Your Free Guide
Ask most investors what their end goal is and they’ll likely respond with: own more property. A common aspiration for many investors is ‘build a property portfolio’ but many struggle to take that investment to the next level.
Discover how you can build a thriving property empire in just five years with our ‘How to Build a Property Empire’ investment guide, filled with key insights into portfolio investing and our exclusive ‘Five Year Empire Plan’.
How to Start a Property Portfolio
1. Determine your investment goals
The first step to start a property portfolio is to consider your goals – whether they’re purely financial or more centered around later life. If you’re investing for capital growth or you’re investing for rental returns, it’s important to get these at the front of your mind early.
This is because these goals will likely determine which portfolio property you invest in first and thus, how you build your property portfolio going forward.
2. Start small, think big
One of the most important things to consider is how you can scale efficiently and more importantly, sustainably. Starting a property portfolio with multiple properties from the jump is typically not the best idea, instead you’ll want to start small. If you’re just starting out for example, you may not be as comfortable investing in a market you don’t know much about. This is where either investing relatively locally or working with trusted partners can help (especially if your local area isn’t an established investment destination).
3. Sustain your cashflow
A key to building a property portfolio is keeping an eye on your cashflow – particularly if your rental income covers your mortgage payments and other potential costs that could arise.
Similarly, creating a separate pot for managing void periods can be a great idea for those starting a property portfolio.
While it’s nice to spend any disposable returns you get from a property investment, having them as a backup and potentially reinvesting is a much better way of building a property portfolio.
4. Focus on your tenants
The cornerstone of any property investment is the tenant. Maintaining an influx of tenants can ensure you don’t experience damaging void periods and treating them well can help maximise tenancy lengths.
Of course, this all starts with choosing the right tenant in the first place. Whether you’re doing this yourself or finding them through a letting agent, this is a step that can mitigate risks further down the line.
Looking to Scale Your Property Investment?
As a seasoned investor, Andy has a wealth of experience in building a high-performing property portfolio and how to effectively scale over the long-term. We speak to him about what kickstarted his investment portfolio and how he’s developed his long-term investment strategy.
Join Andy as he explains what he loves about investment and how he got to where he is today, with unique insights you can apply within your own investments.
How to Build a Property Portfolio
1. Scale slowly
When you build an investment property portfolio, it’s all about scaling within your means, especially when you’re investing over the long-term.
One of the best ways to do this is by staying ahead of the market in terms of upcoming changes – whether that’s within the property market or the economy. By understanding how prices will change and how volatility could affect your investment, you’re more likely to make more informed decisions. Need help with property market updates? Why not check our range of free Property Investment Guides.
As always, speaking to a financial advisor before you build a property portfolio is vital as it’s easy to get into a difficult position where you may have to sell properties to make payments.
2. Always have an exit strategy
When we say exit strategy, we mean understanding that you should always have your main goal at the front of your mind.
What’s the ideal result for your property portfolio? Are you looking to build a long-term, sustainable retirement? Are you intending to hand your property portfolio down as an inheritance? These are all factors that need to be considered over the long-term, which is where your exit strategy comes into play.
How to Sell a Property Portfolio
So you’ve built a property portfolio but you’re looking to action your exit strategy, you may be asking yourself: how do I sell my property portfolio?
Before you consider selling, always remember that property suits a long-term strategy. If you haven’t held on to property as long as possible, you may be missing out on the opportunity to maximise returns.
That said, if you’re sure about selling a property portfolio, your options depend on the size of the portfolio itself.
Landlords with several properties will usually convert them back to ‘traditional’ residential houses that can either be sold through an estate agent or bought by another investor.
For those with a larger portfolio – say 10 or more properties – the best course of action is usually to sell to another landlord. This can be achieved through the many landlord-to-landlord services out or done through your own means.
Just remember, if you’re selling a property portfolio with tenanted properties that’s other factors that need to be taken into account.
The Power of Incorporation
Investing through a Limited Company
The practice of buying property through a limited company structure is on the rise – nearly 43% of landlords in the UK considered it last year alone.
Widely chosen for their flexibility and potential tax benefits, limited company structures can be an efficient way to scale multiple properties within a portfolio.
Similarly, for overseas buyers, it can be an effective way of buying in the UK, helping shorten the process and providing more affordability when combined with favourable foreign exchange.
Want to know more about the process of incorporation? We’ve got the lowdown here.
Best Rental Yields in the UK
Discover the new hotspots
Looking for your next best investment location? We’ve done the hard work for you.
Rental yields is one of the best ways of examining the performance of an area, taking into account both property prices and rental returns.
With rental demand at an all-time high and supply in the uk rapidly falling, we’re particularly seeing rising rental yields in regional areas across the Midlands and the North.
Frequently Asked Questions from Portfolio Investors
How do I manage a property portfolio?
One of the most important things to consider at the start of your investment journey is how you plan to manage a property portfolio.
The easiest way to think about this from the off-set is whether you want to be a hands-on or hands-off investor.
Being hands-on means taking responsibility for managing your own property listings, dealing with potential maintenance issues and even finding your own tenants. This is a great option for those that want full control over the investment or appreciate more flexibility.
On the other hand, being a hands-off investor is a perfectly viable way to manage a property portfolio.
This typically involves hiring a property manager, letting agents or other partner to help you handle the day-to-day of your investment. It’s important to think about this early as this type of investing comes with its own costs that would need to be incorporated into your financial planning.
As you’d imagine, being hands-off is much more useful for those that don’t have the time to manage a property portfolio or, more commonly, those that have invested from overseas. International investors are one of the biggest contributors to the UK Buy-to-Let market and having trusted partners is vital for maximising success over the long-term.
What is a good property portfolio?
If you’re only just considering building a property portfolio or you already have a few assets you’re looking to scale, you might be asking yourself: what is a good property portfolio?
While there’s no one template to the ‘perfect’ portfolio, there are some fundamental rules that you should look to follow.
Firstly, property portfolio diversification is key. A good property portfolio should have a number of different property types – that can be a mix of 1-bed and 2-bed apartments, houses and apartments or even student accommodation and traditional Buy-to-Let.
The opportunities are endless, it’s just important to spread your assets evenly so you’re not overly reliant on one market.
At the same time, having a mix of locations is a great way of mitigating risk and diversifying your income streams.
What is property portfolio diversification?
The best property investment strategies will usually involve some form of property portfolio diversification.
Investing in a single property type in one location limits your ceiling for returns as well as leaving yourself much more exposed.
Property portfolio diversification means spreading the risk across a number of different developments or even investment locations to ensure you’re building multiple income streams.
Instead of choosing your favourite investment location and investing in multiple developments there, consider some of the Best Places to Invest in the UK and hunt for the top developments in the areas you think are best placed to perform.
You can take this one step further and diversify between your objectives. You may have multiple developments focused in areas with top performing rental yields while the rest will be focused on investing in locations forecasting high capital growth.
Can I incorporate my property portfolio?
Simply put, yes you can incorporate a property portfolio.
It’s a method of investment that is rapidly growing in popularity and for investors that are interested in maintaining a large-scale portfolio, it can offer some unique benefits.
Before considering buying through a limited company, as with any investment, it’s important to look at the external market.
While investing through a limited company does come with unique benefits, it should be noted that the current market will have a huge impact on the success of this type of investment.
The level of uncertainty in the market right now – driven by multiple lockdowns – means many mortgage lenders are much more cautious with their products and interest rates.
This means that while there are still pros and cons, the distinctions are much less clear. As always, whether you invest through a company will be dependent on your personal circumstances.
If you do decide to incorporate a property portfolio however, the tax treatment of profits is a major point for investors. Limited companies typically pay corporation tax on their profits at a rate of 19%. With individual income tax rates as high as 45% for some investors, a limited company structure can be much more efficient.
Limited companies also offer more flexibility, making managing income tax for multiple properties and expanding your portfolio much easier.
How do I expand a property portfolio?
The moment an investor decides to expand a property portfolio is one of the most difficult of the entire investment journey, as it can bring with it exciting returns but also means taking on more responsibility.
If you’re considering expanding or scaling a property portfolio, you’ll need to do it slowly, efficiently and backed by plenty of research.
How you expand a property portfolio is based on what assets you currently have. If you have two Buy-to-Let properties in Birmingham, for example, it might be a better idea to look for a new property in a different area so your diversifying.
As always, when you’re growing a portfolio, time is your most important resource. Property inherently suits a long-term strategy, which means you want to spend as much time as possible in the market to take advantage of organic growth.
At this point you should also have an ideal holding pattern in mind, which you will have considered during the planning stage of your investment. Understanding that you’re planning to hold for five, ten or even 15 years can help you inform what you decide to do in the future.
Another common method of expanding a property portfolio is through a limited company – something that is growing in popularity. With a number of unique benefits, a limited company can offer flexibility and savings, although it obviously comes with caveats. As always, speaking with a financial advisor before you incorporate is vital.
That said, if you’re looking to build a property portfolio through a limited company, try and decide this well in advance. This method of investment can offer a number of benefits but may require a slightly longer set-up time that will need to be factored into your plans.
Don’t forget to track your key metrics – is your rental income covering your mortgage payments? Are they still providing reasonable returns? Do you have the preparation in place for your next properties?