How do you build a portfolio up in the first place? It can seem an intimidating prospect to start with but here’s how you can get started.
Purchasing property is seen as one of the best ways to invest your money as you are not only likely to benefit from good overall returns but also healthy rental yields along the way. For many, one property is only the start and the aim is to put together a successful portfolio which can produce some healthy profits on a consistent basis.
The big question is how to build that portfolio up in the first place. It can seem an intimidating prospect to start with, and the thought of huge initial outlay and massive borrowing puts many off, not to mention the headaches and heartaches involved in the purchasing and sales themselves as well as managing tenants.
Here, Director of Pure Investor, Mark Burns shares his insight into some of the best way to make your property portfolio grow successfully.
When it comes to considering building up a property portfolio, you need to decide what your eventual goals will be. Are you focused on the long-term profits from the sale of your properties or are you more concerned with a monthly income boost from the rent? Most answers to this will involve a combination of both but identifying your property will make it clearer what sort of property you need to buy.
We all know that failing to prepare is to prepare to fail, and nothing could be more true when it comes to investing in property.
Doing your homework before you spend a single penny is vital if you want to avoid costly mistakes. You should begin by narrowing down the area you are looking to purchase in by researching where in the country you are likely to get the best return on your investment. A scroll through a few property websites will help you to see the kind of market activity for that area and speaking to local estate and letting agents can establish what the trends are an area and what tenants are looking for.
You should also look at the surrounding area and check whether the facilities and amenities are what your prospective tenants are looking for – there is no point investing in a family home without nearby schools and open spaces. With all of this in place, you will be able to calculate possible rental yields to make sure that your investment will be worthwhile.
You might be keen to get started, but it is advisable to resist the urge to buy a lot of properties in one go. There is always a lot to learn for a first time investor, and taking on too much at once can quickly become overwhelming. Instead, purchase your first property and hold back on expanding your portfolio until you are starting to make some good returns.
When buying as an investment, your head should always rule your heart. Make sure you know the maximum amount that you are prepared to pay and stick to it. You will then need to stay on top of your finances to ensure that any mortgage payment are covered by the rent that you receive and that you have enough finances in place to pay the mortgage should the property be left empty or the tenants default on their rent.
Good tenants are an important asset, so it is important that you make sure you look after them. Choose people who are likely to stay in place for a long period of time and treat your property as if it was their own. This reduces the cost and time involved in replacing them, leaving the property empty or repairing the property when they leave.
Expanding your portfolio
Taking the next steps in expanding your property portfolio should be done cautiously. It will need just as much research as your first property, with close attention being paid to the state of the property market and the wider economy. Whilst growth can mean that your profits go up, it can also mean that your levels of risk are greater too.
Your debt position is important when buying more properties, as borrowing against the value of multiple properties at the same time is not usually advisable as you may be forced to sell several at once if you cannot keep up with repayments. A dedicated mortgage advisor will be able to give you advice on the financing options that are available to you and find the best and most affordable way to make your plan a reality.
The success of your investments will often be dependent on timing, so buying and selling at the right time is just as important as what you choose to buy. Look at previous market trends both nationally and locally to try and understand what is just around the corner and be prepared to move when you need to. Looking for big commercial developments locally are also key pointers that the market is likely to change as new staff move to the area.
Choosing a property which is already a buy-to-let can be advantageous, particularly if there are already tenants in situ. It can give you an indication of the money it is likely to make you and can remove a lot of the hassle. You may decide to specialise with your portfolio by sticking to one particular property type. This allows you to build on your existing knowledge and give you a higher chance of success.
Any investment needs a well thought out exit strategy. You should always keep your overall goal in mind and know when you intend to sell your properties to either buy more or cash in. You will need short-term, mid-term and long-term plans to keep your portfolio and profits on track, with the unpredictability of the property market always in your mind.
Expanding your property portfolio is an exciting prospect but it needs to be approached with care and thought if it is going to be successful. Keeping you long-term goals in mind will help you to focus on what you want to achieve and ensure that you make the right decisions at the right time and for the right reasons.