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Reduce the Risks
It is not advisable to try to build a large property portfolio overnight. Instead, it is best to start small and build a portfolio gradually. This will help to manage the risk and avoid overextending financially. Property investment is a long-term strategy and if the investor rushes, they may find holes in their strategy early in their journey, which could become very costly. However, if an investor starts their journey with one or two properties, and solidifies their investment plan, they may be able to transition this over to property 2 or 3.
Despite this, some investors may benefit from industry advice from a seasoned professional within the property investment industry. In this case, the investor may be able to construct a strong plan which allows them to build a property investment portfolio immediately. This can involve a diverse portfolio of properties in powerhouse locations or block investments.
A Successful Investment
Investors must discover what they are looking to achieve with the property investment portfolio. Investors can benefit from a stable monthly income, huge capital gains or perhaps even both. Once the investor has set their goals, they can start to develop a strategy to achieve them. This will include capital to invest, areas of investment, management of the properties, and rental income. This will help inform the investor on how to move forward with the properties they acquire.
If an investor’s main goal is to build a property portfolio, they will need to raise as much capital as possible. Once they have mortgaged and acquired the properties, they will usually use an interest-only mortgage to maximise their monthly incomings. Eventually, with the right investment, the property should rise in value. Once this has happened, the investor should be able to re-mortgage the property and invest the capital into a second property. This is a continuous spiral which could help the investor build their portfolio.
Much like owning several small businesses, having multiple property investments can be a lot of work. Managing the lettings and maintenance of each property is not an easy task, taking considerable time and cost to keep each property in good shape. Therefore, it may be beneficial to use the services of a property management company. This will offer the landlord a hassle-free experience.
A property management company will tenant the property, handling all enquiries and referencing. Then the management company will handle all rental income, creating a comprehensive breakdown of income and costs. Furthermore, the management company will deal with all maintenance and repairs using trusted local tradesmen to find the landlord the best price. Ultimately, most investors are far more comfortable using a reputable property management company to handle their property portfolio as they can manage far more properties, at a lower cost full-time.
Diversify the Portfolio
Before investing in any property, it is important to research and understand the local market. This includes breaking down the rental demand in the area, average property prices, and property price growth. Identifying an investment hotspot can be difficult, but it can also be the difference between a weak investment and a very successful investment.
To help to reduce the risk and to diversify a portfolio, investors should look at several property types. For example, if a buyer heavily invests in one block of flats, if an issue emerges in that area, the demand from tenants could fall. Therefore, having a variety of properties can be beneficial as it protects the investor from external factors which could affect their portfolio.
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