How to build a property portfolio

Property ownership has always been high on the agenda of many people. It can bring security, diversify an investment portfolio, or create a means of future wealth preservation.

What does the average home cost?

Buyers can now expect to pay around £256,000 for a home, compared to just over £91,000 at the end of 1999, making an increase of more than 280% since the new millennium¹.

First time buyers, who are vital for the maintenance of the country’s housing market, face a much steeper battle to get on the housing ladder now than they did at the end of the last century. The Help to Buy scheme which helped thousands onto the property ladder since 2013, by lending up to 20 per cent of the purchase price interest free for five years, was phased out in March 2021. Whilst the average house price has trebled in the last 20 years pay has only risen by around 70 per cent.

It has also been easier for higher income earners to invest in rental properties through the Buy to Let government scheme, driving a revival of the private rental market.

Where do you start to build a property portfolio?

Before doing anything: identify your goals – what are you aiming to achieve? Are you trying to benefit from property price growth in the long term or to boost earnings through monthly income? From answering these questions you can then work out what kind of property you want to buy and create a long-term plan.

Next do some thorough research including the best areas for buy-to-let properties; current market trends such as the most popular features with tenants; average property and rental prices in your proposed area(s) to get a sense of market activity; local amenities and the type of tenant your property may attract.

Once you’ve identified some suitable locations and properties you’ll need to work out your annual return from rental yields. Choose your tenants wisely and look after them, being contactable if they need to discuss any issues with the property; responding quickly to repairs and maintenance requests and giving tenants as much notice as possible before visiting.

Start small and build sustainably.

Once your first property is up and running you can then start to build your property portfolio but make sensible investment decisions and regularly reviewing the housing market.
You’ll need to consider the following:

> Does your rental income cover your mortgage payments and other outgoings such as landlord insurance?
> Are you getting a reasonable return on investment?
> Would you be able to cover costs if your tenant moved out and you had a vacant premises – for how long?
> Can you cover a maintenance emergency such as a flood?

Managing your finances is key to growing a successful portfolio. It’s beneficial to speak to a Mortgage Adviser who can explain the different finance options available.

^1. Source: HM Land Registry, Registers of Scotland, Land and Property Services Northern Ireland, and Office for National Statistics – UK House Price Index