Property investing is not a quick road to riches. Starting your property portfolio is only the beginning of a long-term investment project. But with the right approach, the strategy can guarantee you a stable income and a secure investment future.
WHAT IS A PROPERTY PORTFOLIO?
The first step to property investing is to know what a property portfolio is. The term is used to refer to a collection of investment properties you own. These properties could be:
- Buy-to-let properties, such as student lets
- Holiday homes at home or abroad
- House of Multiple Occupancy (HMOs)
- Commercial properties
You have a lot of investment strategies to choose from in terms of managing your portfolio. The most common is the buy-to-let model, which, as the name suggests, means you buy property to let. It remains a popular option despite recent changes to regulations. But it’s also possible to build a rent-to-rent portfolio or opt for a buy-refurbish-sell (also known as flipping) strategy.
WHAT DOES PROPERTY INVESTING REQUIRE?
There are many ways to invest different sums. Property investing is not necessarily the easiest investment strategy. However, managing a property portfolio successfully doesn’t typically require a lot of specific expertise, unlike the stock market, for example.
In general, you need to have two things if you want to build a property portfolio: enough time and sufficient starting capital.
HOW MUCH TIME DO YOU NEED?
While it’s possible to build a portfolio that doesn’t require a lot of time investment, the initial steps will need a bit of planning. Property investment isn’t a passive investment strategy. You will need to have enough hours in the week to look after your properties and make sure your strategy is working.
HOW MUCH MONEY DO YOU NEED?
What about the initial investment? Property investing doesn’t require as much initial capital input as many people think. This doesn’t mean it’s completely free either.
The costs associated with building a property portfolio include:
- Solicitor and administrative fees
- Deposit and stamp duty payments to buy the property
- Mortgage payments
- Insurance and property maintenance costs
The aim is to cover the costs with your rental income. However, right at the beginning of your investment journey, you will need capital to buy the first property. Luckily, you can control the cost of it in clever ways. It is possible to use your current property to buy a second one, for instance. You should also understand the tax rules of buying, owning and selling second properties to make tax planning easier.
HOW TO BUILD A PROPERTY PORTFOLIO
Once you understand what property investing is about and what it takes to get started, it’s time to start building your property portfolio. There are three initial steps to take:
1. SET GOALS
Start by thinking why you’re investing in property. Your answer will help you identify goals for property investing and provide you with direction. Perhaps you are looking to generate a lot of continuous income and creating a big buy-to-let portfolio works the best for you. The other alternative could be to invest in property and then sell it for general capital appreciation later. Whatever your reasons, it’s important to think about them before starting out.
2. START SMALL AND SLOW
Even if you want to grow a big property portfolio, you should start small. Don’t invest in more than you can afford – it’s better to minimise the risks at the start. For example, some property investors choose to specialise in property repossessions. However, this can be a high-risk strategy and you should avoid it if you are new to property investing.
As mentioned earlier, property investing is not a quick investment strategy and you should start slowly. You don’t need to amass a huge portfolio within a year. It’s a good idea to test the waters and see if this strategy is for you by buying one or two properties at the start. Build up your portfolio slowly.
3. RESEARCH AND UNDERSTAND THE MARKET
The most important factor behind a successful property portfolio is knowledge. It’s crucial to research your chosen property market and to understand all the aspects of maintaining your portfolio.
When you think about investing in property, you have to pay attention to:
- The location and tenant profile – You want to find properties in areas with growth potential and match the property with the right tenant. For example, students look for different things in properties than families.
- The available rental yield – You have to make calculations to ensure you can meet the costs of owning the property (mortgage, insurance, etc.) and make a big enough profit.
- Potential for capital growth – You want to find properties with growth potential. For instance, the location or possible refurbishment might help with this.
- Your exit strategy for the property – It’s crucial to know what you’ll do in case you have to sell. You don’t want to end up stuck with a property.
On top of this, if you are going down the buy-to-let route, you’ll have to become aware of the rules and responsibilities of being a landlord. You want to become good at picking your tenants and keeping them happy. The most important thing is to build a strong relationship and have your tenants stay long-term. This keeps your costs down – vacant periods are the worst nightmare for property owners!
FIND HELP FOR YOUR PROPERTY INVESTING
Property investing takes a bit of planning. It’s a long-term investment strategy that can provide you with a steady, low-risk income but only if you approach it the right way. When you’re just starting out or you don’t have a lot of time on your hands, it can help to have the right professionals to assist you.
At Devonshire Green, we understand the ins and outs of investment planning. Crafting the right strategy takes time and we can help you create a plan that works for you. Contact us and let’s get your property investing plans moving in the right direction!