What is a property portfolio & how to build one?
As the property market continue to show no sign of slowing down, property business is still a reliable source of stable income.
Investment in a property portfolio has been proven highly profitable in the UK for decades now. However, building a property portfolio can be daunting and growing your portfolio can sometimes seem close to impossible.
First things first - before learning how to build one of your own, you need to understand what a property portfolio is.
What is a property portfolio?
Property portfolio is a collection of investment properties that are owned by a group of people, an individual, or a company. The selection can include current and past deals, as well as different types of properties such as:
· Buy-to-let properties
· Holiday lets
· HMOs (House of Multiple Occupancy)
· Commercial properties
Building a property portfolio is not a quick road to riches. However, with the right conviction and the right strategy, it can guarantee you a stable income and a secured investment future. Here is our guide with tips that could help you along your way.
1. Set long-term goals
Before considering how to build your property portfolio, start by thinking why you’re investing in property. Your answer will outline exactly what you want from your investment and will have an impact on the strategies you choose.
Your goal can be simple. It could be based on which type of property you plan to invest in or could be about what you’re aiming to achieve like:
· Are you looking to make a living from property by boosting your earnings through rental income?
· Or you would want to benefit from the increased value of your property over a long period of time?
· A weekly passive income goal to a yearly goal
Whatever your plans and reasons are, it’s important to think about them before starting out.
2. Make sure you’re financially ready
Whether you plan to buy a property to live in or a property to generate an income each month, you need to initially evaluate the costs associated with purchasing a property.
Thus, in building your own portfolio, you need to ensure that you are financially ready as you will also need to make a deposit every time you invest in a property, and this may impact your strategy.
Property investment can provide a lucrative income but can also be costly plus, there are a lot of on-going expenses which should be taken into consideration such as:
· Income Tax & Capital Gains Tax
· Landlord Insurance
· Landlord license
· Letting Agent Management Fees
· Stamp duty
· Property maintenance costs
· Empty/void periods
Remember that it’s very significant to know what costs lie ahead so you can plan on how you can prepare for them and later estimate how much rent you’ll ask for to make a profit.
3. Research and learn your market
Being knowledgeable and understanding your market are significant factors in building a successful property portfolio.
Conduct a research on the areas and different locations to find out where you it is right to invest. That way you can determine a property’s potential rental return and plan on future investment strategies.
When researching an area, you’ll need to consider these several factors:
· Monthly rent
· Rental yields and rental returns
· House price growth potential
You should also pay attention to the following:
· Demand – you want to look for properties in areas with growth potential and match with the right tenant. Having a good idea of your target market will help you to style and market the property to their tastes and needs.
· Rental yields – this is your annual rental income as a percentage of the property's total value. Look for areas and postcodes with the best rates of return. You also have to ensure you can meet the costs of owning the property and make a high profit.
· Location and capital growth – you want to find properties with growth potential. Look for areas that have seen a steady growth in house prices and where the growth is expected to continue.
4. Start small
Most of the first-time investors are very enthusiastic that they want to jump and grow a big property portfolio right away by buying multiple properties at the same time. But if you start doing too much too soon, things might get out of hand.
If you’re just new to the property business and you want to grow an extensive property portfolio in the long term, start small and build sustainably. It’s best to mitigate the risks at the start.
Build up your portfolio slowly- this will give you a valuable experience. Learn the process and see how every aspect of the buying process works for yourself. It’s also a good idea to test the waters and see if this strategy is for you by purchasing one or two properties at the start. Once it’s up and running, you can follow and improve the process - a process which you can repeat should you want to expand your property portfolio.
5. Diversify your portfolio
By investing in just one area or type of property, you limit your potential and make yourself prone to failure if the market slows in your niche.
So as soon as you get familiar and adept in the property industry, it’s important to grow your portfolio- which means buying new properties and adding them to the mix. The key to any successful investment portfolio is diversity.
Diversifying your property portfolio will help grow your portfolio faster – that is by investing in multiple properties scattered throughout different areas. If two of those areas fail in some way but one of them does, it can certainly offer you a healthy cash flow, lets you buy more properties and gain other major financial benefits.
You can diversify your property portfolio in various ways by:
· Location – diversify your portfolio by investing in different locations
· Property type – a combination such as commercial and residential property and every property type appeals more to a specific demographic
· Demography - purchase properties that can cater to different markets
Although property is known as one of the safer investments to choose from, it’s a wise decision to spread risk across your portfolio.