How to start a property portfolio?

  • August 4, 2023
  • January 8, 2024
  • Shaz Nawaz
  • 8 min read

Your first step is to figure out your goals and targets. Ask yourself what you expect from your property portfolio. Do you want to boost your earnings from property price growth when selling the property or are you hoping to benefit from rental income? After all, you might desire to hit both targets.  If you want the value of your property to go up, you might have to hold your property for some time and rent it out during that time. Setting targets like short-term, mid-term, and long-term can help give you the best chance of success.

you have two options, either to focus on capital growth, but for that, you will have to hold onto the property for a long time to receive higher returns, or to focus on your investment as a source of rental income.

Think about how much time you have to wait or devote to your property business. Also, consider the options of whether you have the time to be a hands-on landlord who is responsible for everything about the property like finding tenants, managing maintenance issues, collecting rent payments, and marketing for new tenants when potential void periods arise. If you are time-poor, you have the option to hire a management agent to do the job for you.

But when it comes to diversifying your property portfolio, it is important to invest both in on-hand and off-hand properties. And the same strategy applies in prioritizing rental and capital growth income. Make investments in different types of properties where you can get rental income and with the passage of time higher capital growth.

How to start a property portfolio

Conduct Research

Like any other business, it is important to conduct comprehensive research across the market before making any investment. spend time researching the buy-to-let property market to find out the best location and target market for property investment. For instance, you should look at the different aspects of the property such as:

Rental yields: rental yield is the annual income as a percentage of the total value of the property. Based on annual rental income, investors determine whether the property is a good investment. look for areas and the types of properties with the best rates of return.

House price growth: In the past few years, UK property has experienced huge growth. In recent months the market has been settling, with changes in mortgage rates influencing buyers and the rising cost of living.

Demand: Central London will always attract tenants because of its vibrancy and employment opportunities. Consider the type of tenant you want to attract and what will be appealing to him. These are a few important steps; you should take into consideration when investing in property. Families will always prefer an area having well-performing schools and parks nearby. Undoubtedly students will want to be in a home within walking distance of their university or college.

Make sure of financial readiness.

Before you build your property portfolio, make sure you have the cash available to buy property. it is possible for you to buy your first investment property with buy-to-let mortgages with a smaller budget. However, you will also need some cash for a deposit, most lenders, before granting you a buy-to-let mortgage will look for a 25% deposit, but you will get the best deal with a deposit of 40% or more.

You will also have to pay for Stamp Duty Land Tax (SDLT). When you buy a property in England and Northern Ireland, it is a one-off tax you must pay. Stamp Duty Land Tax (SDLT) differ from property to property depending on the property’s purchase price.

Other costs that you need to take into consideration include conveyancing fees and spending money to get the property ready to rent such as getting gas checks, buying furniture, organizing an EPC, and marketing etc.

Start small and grow steadily.

Pay extra attention in choosing your first investment and opt for a low-risk option. you had better choose a property that is close to your residency as you will have a profound understanding of the area and more importantly, maintenance will be much easier as you won’t have to travel far. Another advantage includes the feasibility of keeping an eye on your investment as you will probably be over-cautious as a first-time landlord.

You need to start slowly and with plenty of thought if you want to grow an extensive property portfolio in the long term. Try to prevent yourself from being exposed to too much debt, for example, you may be compelled to sell several properties if you fail to repay the mortgage for one of your buy-to-let properties.

Have a good strategy for an offer.

How can you start building a property portfolio without learning to overcome the odds? Refine your strategy and think long-term. Follow trends of the wider property market and keep yourself updated with the upcoming local developments to get the timing right.

Understand the rules and regulations of the property market.

Try to get industry inside-out knowledge relating to legislation and regulations. There have been multiple changes to buy-to-let in recent years such as an increase in Stamp Duty Land Tax (SDLT), changes to mortgage tax relief, energy efficiency, and stricter rules around gas safety checks. You also need to understand legal requirements like getting checks completed before signing the tenancy agreement and your obligation to protect the deposit of your tenant in a government-backed scheme. You can all this information and more on the government’s website under ‘landlord responsibilities.

It is a great idea to keep yourself informed about all the rules and regulations when it comes to becoming a landlord and letting out property. Regulations relating to fire safety and checks around utilities for a rented property have been tightened. It is essential to show tenants Energy Performance Certificates and tell them where their deposit is secured.

Choose good tenants and take proper care of them.

 Choosing good tenants and treating them well is essential to building a successful property portfolio. Screen tenants with references and credit checks to make sure they will pay on time and look after your property.

Be approachable and friendly – but keep things professional. By being cooperative and polite, you will be able to encourage your good tenants to stay on your property, eliminating the dreaded void periods.

Consider hiring an agent.

Are you worried about building your property portfolio because you remained engaged the whole day at another job? There are certain people who offer property management services who give you the capacity to grow your portfolio property investment.

An experienced letting agent will work on your behalf such as marketing, finding tenants, and dealing with engineers, plumbers, accountants, and providing services like management and maintenance of the property.

Keep cash always ready.

Always keep in mind that a property portfolio is a business, so never forget to treat it as such. Ensure to keep up with your cash flow situation. Develop a system to record incoming and outgoing, factor in repairs and maintenance costs, and make sure on a priority basis to have enough money to cover the mortgage payments. Keep yourself financially stable to cover inevitable void periods.

The best way to keep a record of your finance is to create a system to record all your documents related to your property and tenants.

Landlord tax

As a landlord, at the end of the year, record rental income on your self-assessment form. When you start a property portfolio you must declare your rental income separately regardless of if you are presently paying tax as an employee. Tax is due on every profitable income after deducting allowable outgoings. If you have no clarity of what you can claim, visit the government website, and look under self-assessment for landlords.

Does company status suit you better?

If you have many properties, and certainly at least a handful, then it may prove more profitable for you to register it as a limited company in view of tax payment. it would be profitable for you in the sense that corporation tax is lower than the income tax of higher-rate taxpayers. When it comes to tax efficiency, it is best to get advice from an accountant familiar with property matters because the tax will depend on your personal circumstances and portfolio.

If you are planning to have just one or two properties generating modest income, limited ownership may not be a good option for you, it may be good to stick to paying income tax. However, over time, you may have a few properties and a more diverse portfolio, so it may be worth thinking at the outset before you start buying and branching more properties. That’s because when you switch from self-assessment to company status, it means you will be paying Capital Gains Tax (CGT) on your properties when you ‘sell’ them to your company.

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