Key Highlights

A property portfolio is essentially a number of properties owned by an investor in order to generate income. Landlords can rent out residential, commercial, or industrial properties to tenants. Renters can rent out these buildings on a long or short-term basis, depending on the goal or type of property.

Having a strong portfolio can create robust and reliable income for an investor – with most of it passive. This is achieved by keeping certain properties for an extended period to allow them to appreciate in value. Afterward, they are sold at a higher price to make a profit. Investors may also choose to rent out the property, with the aim of achieving high yields to further generate income.

Like with any good investment, building a property portfolio takes time, patience, and money. While property is often regarded as being more secure than other forms of investment, it’s not without its potential pitfalls. Research, dedication, and a strong portfolio can help any seasoned investor weather those storms.

A secure and carefully managed investment property portfolio will be able to provide regular income throughout its lifecycle. This will help you to build up wealth over a certain time period.

Read on in this guide to find out more about how to build a property portfolio and what to do when you hit a potential snag.

Why Build A Portfolio

Building a property portfolio can bring a lot of benefits to investors. It can help to generate passive income, which can even become primary income if successful enough. Specifically having several properties, including a particularly diversified portfolio, can generate a robust cash flow that offers more dividends. 

A property portfolio, if correctly maintained and managed, brings a number of benefits:

1. Increased Returns: More properties generating income naturally means more returns. With a larger portfolio, investors can utilise this equity to fund new property deals.
2. Reduced Risk: Investing in a diverse range of properties can help to reduce risk. If one property is badly damaged or empty, an investor won’t lose a lot of money. This is because they have other properties to rely on for income. 
3. Stability: Property investment is considered a stable investment as property is a tangible asset – i.e., you have a physical possession that belongs to you. Properties tend to maintain their value and appreciate in value over time.
4. Increased Returns: Having multiple investment properties can generate a regular and consistent income and help you accumulate wealth faster. A lot of investors often choose to use these funds to continue to expand, effectively creating a property investment empire, though this is something that takes time. It is not uncommon for investors with multiple properties to be able to retire early.

Financial Planning

To begin building your property portfolio, first plan and budget your finances carefully. Investors should work out exactly what they can reasonably afford and what property will be profitable. Investors should research what financing options are available to them. There are a lot of hidden costs or surprise payments that not all investors prepare themselves for and can end up falling short.

After figuring out where they will get funding and securing it, investors should make a budget that falls within this parameter – and stick to it. From there, investors should factor in repairs, maintenance, property taxes, letting fees, agency fees, capital gain taxes, interest rates, and fees for advisors and accountants if using.

Start Small

Rome wasn’t built in a day. For those just starting out, it’s recommended to invest in one property and get to learn the ropes first before expanding. It is generally ill-advised to purchase several properties at once for first-time or novice investors.

First-time properties should be as low-risk as possible, in an area with high demand and a property that needs next to no renovations or maintenance. Once that is successful and you see the stable and consistent returns coming in, that’s when you should consider expanding.

Starting small should also apply to your budget. Investors can sometimes make the mistake of paying too much for a property and not really seeing a positive ROI. Generally, buying below market value gives investors a much better chance of financial success and an increased ROI. Finding properties below market rate isn’t easy, but there are a variety of ways investors can find them.

Market Research

Like with any investment worth its salt, careful and thorough research needs to be done. Once you have a goal for investing, begin researching different ways to achieve it. Choose the option that best aligns with your goals and preferences.

Getting information and second opinions from specialists can also be extremely beneficial in helping you understand the market and exactly what you can do in order to build your portfolio. 

This can include speaking to local estate agents about market trends, locations, and current demands. Agents can give a clearer, more informed view of what demand is like in certain areas and what investors can expect. They may be able to steer investors into looking at better locations and properties that suit their goals and budgets. Another tip would be joining discussion forums and boards for investors and landlords to seek advice from people with hands-on experience.

Some areas of market research include:

Location

Research needs to go into the location to determine whether it’s somewhere tenants would like to live. Amenities and transport links are key indicators of whether a location or property is a smart investment choice. Renters tend to want amenities and transport links within a walkable distance, especially if they are commuting to work or school. 

Rental Yields

Potential rental yield hotspots in your area should also be considered. Investors should also research the average rental yields in their chosen city in order to work out what the actual rental profit will be.

Rental yields can differ from neighbourhood to neighbourhood. Rental yield is the percentage of profit an investor earns over the course of a year, divided by the property’s total value. Rental yields are a great indicator as to whether a property will actually be profitable to rent out.

Investors should check the average house price and rental prices in the area to see if the predicted yield is accurate. This helps ensure they will make a profit and see their investment grow over time. Looking at property websites can give you a good idea of house and apartment prices in your chosen area. It may also be beneficial to do cost comparisons with other neighbourhoods and areas to see what potentially might bring a greater return.

Risks

Property investment, although it may seem more stable than other forms of investment, is not without risk. Potential investors need to research the risks of property investment.

Investors should also look into the location and property they want to invest in. Additionally, they should consider the risks of being a landlord. Risks in property investment can include financial crashes, house prices falling, bad tenants, problems with planning and council, and damage to property.

Keep It Local

If you’re new to investing, it’s generally considered better to invest close to where you are based rather than further afield. For those new to investing and being a landlord, staying local or being within a commutable distance from your property can give you a good indicator of the local property market. You’re more likely to spot deals or know where the best spots are if it’s an area you already know very well.

It also makes more logistical sense if you plan on managing the property itself or need to oversee any renovation work that might need doing. If you also intend to manage the lettings side, having the property within reach is also handy for both you and the tenant.

This isn’t to say that you need to keep it to your immediate area. Once you start building capital and getting to grips with property investment, that’s when it is best to start expanding to other areas.

Find Your Niche

Some investors opt to specialise in a single property type. This can be a great option for those just starting out as they can specialise in one particular area and hone their knowledge. With knowledge comes confidence, making investors more assured in their investments and strategies. Once you’ve mastered your niche, that’s when it is time to spread it into other property ventures and types.

Auctions

Being successful at auctions definitely requires a bit of finesse, but investors can potentially acquire properties at a cheaper price. A lot of properties for investors go at auction, with few of them frequently being off-plan properties. 

It is important, however, that you have the funds secured before going into an auction – deposits are taken immediately. There are usually a lot of fees needed to be paid at auctions as well, such as fees towards the auction house. Researching the auction before is important to know how much you need to pay if you win. Investors should also agree on a bid limit before they begin so they do not go over their funds during the auction.

Off-Plan Properties

Other ways to get properties at a lower price than market value include purchasing off-plan properties. Off-plan property means properties that have not yet been completed – they are still in the development or even planning stage.

These properties are sold to investors prior to completion, with the idea that they will start generating revenue for investors once they’re ready to be let out. There are a number of benefits when it comes to investing in off-plan property, with a lower rate than market value being the main one.

Lower Prices

Developers need to ensure that properties are purchased, so they will tend to offer these apartments below market rate to investors as an incentive. Occasionally, deals might be offered if the investor purchases multiple properties, though this isn’t always the case.

Capital Growth

Off-plan also offers the potential for a higher growth in house prices. Properties accumulate value, even when they’re still being built. A property scheduled for development in 2024 will have gone up in price by 2027 when it is nearing completion. This brings added value and more money for an investor who purchased the property in the beginning.

It also allows the investor to be able to resell it for a profit even before it is completed. This offers a quick cash grab for investors looking to quickly make a profit, though it is more financially beneficial in the long run to let the property.

Smaller Deposits

While this is subject to the developer, some companies offer smaller deposits and even staged payments to entice investors. Smaller deposits can range from 5 to 10% of the property price. Staged payments can stagger the cost of the property, enabling them to acquire the property without having to put a large deposit down.

Energy Efficiency

New builds tend to be a lot more energy efficient and eco-friendly than older, pre-built homes. Most new builds have a grading of B or C on the EPC rating, which is an energy performance certificate. A, B, and C are considered a strong energy performance level, meaning they are more energy efficient and climate friendly.

Diversify Your Portfolio

The best way to build a property portfolio is to have several properties across multiple and different locations. It also is beneficial to adopt a range of property types in your portfolio, such as flats, houses, and bungalows.

A diverse property portfolio offers a lot of stability as well. More properties in a range of locations and styles means more steady and consistent income. If there is an issue with one property, generally the rest will be fine, ensuring that there is still money coming in.

Choose An Investment Firm

Property investment firms can be extremely beneficial in helping you get the most out of your investment. These firms specialised in finding the best deals and properties for you, using their expertise and knowledge to find the right property. They can help you build your real estate investment portfolio, conduct property management, and help you to diversify your real estate investments.

Summary

Here at North Property Group, our experienced team can help you find the best investment opportunities in all these cities and more. We have a deep and rich understanding of the UK’s property market and can offer expert guidance so you can make the most out of your investment. Call us today to unlock the investment potential in the UK.