You’re planning your financial future and considering new ways to grow your wealth when, suddenly, the question, “How do you build a property portfolio?” springs into mind. There’s so much to consider, like choosing the right properties and finding the best finance options, but with a structured plan and professional support, you can overcome the hurdles.
We’ve created this ultimate property portfolio guide to help newbies and experienced property investors confidently build a property portfolio.
Why build a rental property portfolio?
Getting onto the property ladder is one of those goals that is drilled into young professionals. It offers security, freedom, and builds generational wealth. The sooner you get onto the ladder, the sooner you begin to benefit. But some individuals, as well as company owners, don’t stop once they get their first property. Instead, they see it as an opportunity to build a property portfolio and safeguard their future.
There are approximately 2.84 million landlords in the UK, equating to around £44.7 billion (yes, billion) of property income. Whether you are new to property investment or a seasoned buy-to-let investor, there are plenty of reasons to build a property portfolio.
Here’s what you can achieve as a successful property investor:
- Earn a steady income stream from renting out multiple properties
- Protect your wealth with a mix of residential and commercial properties
- Create a tangible asset that can be passed down to future generations
- Reduce the ongoing costs of running a property portfolio with mortgage interest and tax benefits
- Protect your income against inflation as property values and rent rise over time
What to consider when building a property portfolio?
Kickstarting your property investment journey is exciting, but you need to know where to begin. Market trends, capital appreciation, its a mind field out there! It’s likely you already have 101 thoughts racing through your mind, which is why you should take the time to map out your investment strategy.
Wondering where to start? Take a look at what you should consider when building a property portfolio.
Investment goals
Before jumping into property portfolio investing head first, think about your property investment goals. Are you looking for a quick profit? Stable income? Long-term capital growth? Your goals will shape your investment strategy and the types of properties you invest in. You need to research average rental yield, speak to other property owners and conduct market research.
Thinking of selling property? Remember that Capital Gains Tax applies to certain property investments that are purchased with the sole intention of making a profit. There are ways you can soften the hit, and a trained property accountant can help you plan accordingly.
Budget
Decide how much you can afford to invest. Working out a budget will help you determine where you buy and the types of properties you can afford. There are plenty of costs that go into building a property portfolio, including legal fees, mortgage costs, and maintenance expenses.
If you’re just starting out, you may want to look for below-market-value properties to bag a bargain. This includes picking the right time to invest, searching at the Auction House, and finding doer-uppers.
Property market
Research areas with strong rental demand to make sure you’re investing in the right location. Property sites like Zoopla and Rightmove are a great place to start. You can view properties for sale and rent across the UK or get key information about rental yields, property prices, and trends.
Rental income
Currently, in the UK, the average rental yield sits around 5% and 8%, which is a pretty good sign. Many factors contribute to how much rent you can make, such as the type of property you buy, its size, and its location. Working out your net rental income (what you’ll be left with after expenses) is how you determine potential rental profits and whether the investment is worth it.
Remember, rental yield is just part of the bigger picture. You also need to be able to find suitable tenants and collect rent each month to make a profit.
Company structure
Buying one or two investment properties in your own name is usually fine for basic-rate taxpayers. However, if you want to build a successful property portfolio, setting up as a limited company landlord can help you get there quicker.
For a start, owning buy-to-lets as a limited company means you pay Corporation Tax instead of Income Tax on rental profits, which can reduce your tax bill. It also means your personal finances become separate from your rental business, so you have more protection if things go wrong.
What types of investment property are there in the UK?
When investing in a property portfolio, you should look to purchase multiple properties to create a reliable income. Different types of properties attract different tenants. If one property type dips due to the market or vacancies, you can rely on the others to keep you afloat.
Buy-to-let
Buy-to-let properties are pretty self-explanatory. You buy a property with the sole intention of letting it out to tenants. This includes residential properties, like family homes, flats, bungalows, and even converted commercial properties. You can also use buy-to-let property for Airbnb rental.
Buy-to-let mortgages usually require a larger deposit of around 25% and are interest-only, lowering your monthly costs. Most lenders will expect the BTL property to achieve a minimum rental yield, and you’ll likely need some experience in the property market, such as owning your own home or multiple investment properties.
HMO
Houses in multiple occupation (HMO) are properties that are purposely designed to house multiple tenants from different households. Each new tenant has their own bedroom (and sometimes en suite) but shares common living spaces, such as kitchens, living rooms, and bathrooms. More often than not, they are rented by students and young professionals.
Wondering whether your home could be a house of multiple occupants? Well, with a specialist HMO mortgage and potentially some planning permission (depending on how many tenants you want to house), you can turn your own house into an HMO.
Furnished holiday lets
Holiday lets and Airbnbs are let out to holiday goers and short-term tenants, generating a high rental income during the peak summer holidays. They add diversity to an existing property portfolio, but you should keep in mind the seasonal fluctuations and potential tenant vacancies.
You can get a specific holiday let mortgage on a new property or an existing home that you wish to rent out as a holiday let.
Multi-unit freehold blocks (MUFB)
An MUFB is one property that is turned into multiple self-contained units, each with its own separate entrance, kitchen, living space, and bathroom. This could be a block of individual flats or a house converted into flats. While they are somewhat similar, MUFBs don’t require the same strict licencing as HMO properties.
Commercial properties
Diversifying your property portfolio using different property types, like a mix of residential and commercial property, means you don’t put all your eggs in one basket. You’re better protected from market downturns and vacancies. While they may have some hefty upfront investment costs, offices and retail spaces tend to have longer leases and provide a more steady income.
How to finance your property portfolio
Financing your property purchases is an important part of growing an extensive portfolio. There are many options, each with specific lending criteria and terms. Some products will be more suited to your investment goals than others, offering better interest rates and terms that help you keep up with your mortgage payments and make a profit.
As specialist mortgage brokers, we can help you find the right mortgage product for each property type. Why not book a meeting to discuss your property portfolio and mortgage needs?
How to manage your rental properties effectively
Managing your property portfolio effectively is how you’ll generate rental income year-round and keep your portfolio running smoothly.
Self-management or hiring a property manager
If you’ve just started out and have a bit of time on your hands, then you might choose to manage the entire portfolio yourself and save some money. Otherwise, you can always pay a property management company to do it for you. They will assist with most of the hard work, like screening tenants, booking repairs, and collecting rent. You’re left with more time and less stress to focus on growing your portfolio.
Tenant screening
Finding the right tenants is more important than you might think. After all, they will be the ones who pay rent and live in the properties. This means checking they have a stable income, a positive rental history, and a good credit history.
Rent collection
Collecting rent on time keeps your mortgage payments covered and provides a steady cash flow. You should automate the process and encourage tenants to set up a Direct Debit or standing order to reduce the chance of missed payments.
Property maintenance and repairs
Staying on top of maintenance and repairs keeps your current tenants happy and prospective tenants interested. It helps you avoid long periods of vacancies. You should set aside a budget for ongoing maintenance and repair costs and consider using a trusted contractor or management company.
Legal compliance
Keep your tenants and investments safe by knowing your landlord responsibilities inside out, including health and safety regulations, tenancy requirements, and tax laws. Property investors are busy people, so if you don’t have the time to keep up with the changes, you should hire an advisor to help.
Looking to build your property portfolio? Get in touch with Simmonds Mortgage Services
Property portfolios are great for long-term financial security, but starting out isn’t easy. Simmonds Mortgage Services will find you the right mortgage for your next property investment. Drop us an email at info@simmondsmortgage.co.uk, or call us on 01184 693037 and let’s discuss your property investment portfolio.
