5 Top Tips On Building A Property Portfolio
Property investing has become increasingly popular in recent years, and for good reason. Building a property portfolio offers an attractive way to grow your wealth while providing a steady income stream. But there are many things to consider before jumping into this type of investment.
Here are our 5 top tips to get you started in shaping your future!
TIP 1: Structure Your Property Portfolio Business
One of the first questions we get asked is “should I be purchasing in my own name or under the structure of a Limited Company?”. The answer depends on a number of factors which will vary depending on your individual financial situation. The best advice we can give is to speak to an accountant, discuss your plans and consider the following points;
If buying in your own name, the profits from the rental income will be taxed alongside your other earnings such as your salary and any other income from dividends or shares. As soon as you start pushing over the Higher Rate Tax Band, this can start to get costly. If you buy using a Limited Company, the profits will remain at the Corporation Tax Rate but it comes with the added costs of using this structure.
If you are planning on building a property at scale then you need to consider your lending options. If you own four or more Buy-to-Let properties then you are considered a portfolio landlord and this can start to restrict your lending availability. We would recommend speaking to a Commercial Broker as this can often open up more lending options and allow for larger growth. It does, however, require you to be buying under a Limited Company structure.
This is where planning ahead is essential! If you start buying in your own name and then want to transfer to a Limited Company, it can be costly. You effectively need to sell the properties to your Company. This, therefore, involves paying capital gains tax, LBTT and ADS. You also need to account for conveyancing, mortgages and any early repayment charges.
If you are considering your options, we would gladly introduce you to our recommended Commercial Broker, Watts Commercial Finance. Just email us at [email protected] and we can make the arrangements for you.
TIP 2: Understand ‘Why?’ You Are Building A Property Portfolio
Not everyone gets into property investment for the same reason so it is important to think about what you’re aiming to achieve. Are you looking to boost your monthly income or replace your current salary? Or are you looking to retain the profits and constantly reinvest to benefit long-term?
A lot of people want to build a property portfolio for a mixture of the two. It is, however, very important to ask yourself these questions to create a plan of action and set some targets. This could be the overall value of your portfolio, a monthly income figure or a certain number of properties. It doesn’t matter what the targets are, as long as they are relevant to what you want to achieve.
Again, speak to your accountant to understand the pros and cons of your various options to ensure you are taking the right action.
TIP 3: Research, Research, Research
Once you have established ‘why’ you are looking at building a property portfolio, you need to then figure out ‘How’.
Research what locations, property types, tenant demographics and investment strategies are best suited to achieving your goals and apply your focus there. This could be looking at prime locations for capital growth or lower-value property types for higher yields to boost the monthly profits.
A great way to start carrying out your due diligence is by using property portals such as RightMove, Onthemarket.com and Zoopla. Research property prices and rental potential for different locations. Also, use extensions such as PATMA to make your life easier when using these portals. Check out our Instagram Post about PATMA here!.
There is an ever-growing community within the Scottish property investment industry. Attend networking events such as PIN and The Scottish Property Podcast to get to know other investors. This guidance, advice and potential for working together are priceless for building your property portfolio.
TIP 4: Happy Tenants = Happy Landlords
Looking after your tenants is not only your duty as a landlord but also vital from a business perspective to ensure you are building your property portfolio effectively and smoothly. At the end of the day, your tenants are the ones providing your monthly rental income. They should always be your priority, you also have the honour of providing them with somewhere they can call home, which should never be forgotten.
We would always recommend using a good Lettings Agent! Please use the Contact Us page on our website if you would like an introduction to somebody who we trust to provide a great service in your area. A good Lettings Agent will take the weight off your shoulders when it comes to selecting good tenants, and dealing with ongoing enquiries. They should also provide you with advice and guidance to ensure you are maximising the return on your investment by keeping up with fair market rental income rates.
TIP 5: When You’re Ready, Scale up!
When you are starting out in property investment and taking the first steps to build your property portfolio, by all means, tread carefully. Take the time to make the right choices and grow your confidence. Learn from your mistakes (which you will make!) and design your bespoke blueprint of how you buy and what you do with the properties to ensure you are aiming towards your targets.
However, when the time is right and you are ready to do so, don’t be scared of scaling up quickly!
Whilst slow and steady may work initially, the benefits of buying in bulk are fantastic. Just make sure you are fully prepared for what’s involved. By buying a property portfolio rather than individual properties, you can benefit from the following;
- Substantial increase in rental income
- Potential for larger discounts
- Ready-made professional portfolios
- Huge tax savings on 6+ unit purchases
- One mortgage payment for multiple properties
- Discounted material costs for multiple renovation projects
- Full block ownership for easier management
There are, however, the following aspects to consider;
- Larger deposits are required for higher overall purchase prices
- Lending can become expensive
- Lender criteria can be strict
- You need to be well-prepared to take on multiple projects
- Properties will most likely be tenanted so harder to refurbish
Overall, it’s about weighing up if you are ready to take on a more complex opportunity. Remember it takes action to be gifted with rewards. We are always happy to have a chat to discuss your unique situation and how we can help you, just book a call and we can talk things through.
When building a property portfolio, preparation is key and deciding on your goals coupled with a solid plan of action will ensure it’s a profitable investment. Property portfolios are long-term investments that can provide steady income, so long as you approach it correctly.
Hopefully, these tips will give you guidance and direction to start building a property portfolio and we would love to be involved in making it a reality for you.
Our platform allows buyers access to unique portfolio purchase opportunities. These are not readily available to the open market and prices are pre-negotiated to ensure they are lucrative investment opportunities. Find out more about buying a property portfolio here!
We look forward to hearing from you.