How to Build a Property Portfolio
Investments come, investments go, but building a property portfolio remains one of the most reliable ways to generate a worthwhile income. Are you thinking about making a long term investment in bricks and mortar? This guide is designed for those researching building a property portfolio. Here’s everything you need to know about starting a property portfolio, creating a winning strategy, and managing your portfolio.
How to Start a Property Portfolio
Property is one of the most common investment types in the UK, mainly because it has proved so reliable for so long. Think about it – can you remember a time when the values of property plummeted and stayed down for years? We had a dramatic blip in the late 1980s/early 1990s, when we saw an 18% drop from peak to trough, but it turned out to be temporary. Property prices fell in Q4 1989 but had recovered by Q1 2002. While property prices can fall, as long as you’ve put a wise property investment strategy in place you shouldn’t suffer financially.
Next, let’s look at some key aspects of a winning property portfolio investment strategy.
Define Your Goals
Why are you starting a property portfolio? It’s important to clearly define the objectives you want your portfolio to achieve. You need goals. After all, if you don’t know exactly what you want to achieve, you won’t know if and when you’ve achieved it. Here are some examples to help you with building a property portfolio, UK based and profitable.
- What do you want out of your real estate portfolio? Maybe you’re keen to generate a reliable supplementary rental income to save, invest, or simply make your everyday financial life easier
- Perhaps you want to completely give up work and live on the income you get from a rental portfolio
- Plenty of people invest in property at retirement, using some of their pension pot to invest in it
- You might have been made redundant and want to put your redundancy payment to better use than leaving it in a savings account, where it’ll gather nothing but a tiny amount of interest
- You might just love the thrill of the game, inspired by the idea of developing and flipping property, doing it up and selling for a fast profit.
- You may want to help family members who are desperate for somewhere of their own to live
Get the Best Advice
Unless you’re already a property market pro it makes a lot of sense to tap into all the expert advice, help and support you can find, right from the start. We strongly recommend you never try to ‘go it alone’. Property might be an excellent investment but it’s still possible to get yourself into a financial mess. If you’re intending to develop a portfolio of properties to let, can you find a friendly letting agent to give you the insider low-down? Maybe you could find yourself an experienced mentor in the shape of someone who already has a successful, hard-working property portfolio example for you to follow.
Do Your Research
Thorough property portfolio research is a must to identify potential pitfalls and mitigate risks around building a property portfolio. It can be all too easy to find yourself falling in love with a property in the same way you do when buying for yourself. Making yourself slow down and doing all the relevant due diligence is a good way to help avoid being overcome with desire for a completely unsuitable building!
So what should you look into when building and managing a property portfolio? Here are some important examples:
- Property is an asset class in itself, but can be split into commercial property and residential property. Research both so you know exactly what they involve, the similarities, differences, and common issues for investors
- It’s vital to research the costs involved so you don’t get any nasty surprises
- Before you make any offers, make sure you research every aspect of the property itself so you know exactly what you’re buying
- You’ll need to know all the many ins and outs involved in managing a property portfolio
- You’ll need to develop skills in dealing with tenants if you want a smooth ride from the start
- It’s a good ideas to explore using letting agents, to see if that will save you more time and money than you’d spend doing it yourself – if so you’ll need to research the perfect letting agent partner
Park your enthusiasm for now, and start small. Treat buying your first investment property as a test run where you iron out any wrinkles in your property portfolio strategy, see how every aspect of the buying process works for yourself, know whether any partnerships you’ve built are working as they need to, and figure out if there’s a way to do it better next time. Now you can ‘template’ the process so it runs like clockwork, a process you can repeat to expand your property portfolio.
Thoroughly Assess Tenants
One of the biggest problems many property investors come across is tenant issues. It’s vitally important to vet every tenant with great care to avoid tenants who are bad payers, who damage the property, refuse to pay rent, upset the neighbours, break the law or squat the property. It can be a real challenge, and an expensive one, to remove sitting tenants who stop paying their rent. The more references and assurances you can get, the better. Follow expert guidance around managing tenants to the letter and you’ll be able to minimise the risks.
Grow with Caution
It’s a thrill buying property… but the excitement of it all means you’re at risk of being too keen, maybe growing too fast. The idea is to grow sustainably, wisely and steadily, making sure your latest property is tenanted and bringing regular money in before investing in the next property. It’s your job to carefully assess every property, every deal, and every tenancy. Buy too many properties too fast and you could find you can’t pay the mortgages off, sliding into multiple arrears.
Consider Diverse Property Asset Classes and Locations
It’s sensible to vary your portfolio rather than put all your eggs in one basket. You can invest in both residential properties and commercial properties, covering yourself in case either of them suffers market difficulties. You could invest in property for development as part of your real estate portfolio. Think offices, retail premises, industrial property, agricultural property, and always spread your locations widely too, nearby and further afield, to mitigate any local slumps in property demand or rental incomes.
Setting you up for successful property portfolio management
Now you know how to avoid the pitfalls involved in buying property as an investment, achieving a great property portfolio valuation, and making a decent profit. As a prospective property investor or developer, the potential is enormous. We wish you luck in your venture.