Look down most rich lists and you’re sure to spot a common theme: real estate investment. Though you won’t make the kind of money billionaire property investors like Lee Shau Kee, Donald Bren and Charoen Sirivadhanabhakdi do (as per Forbes’ World’s Billionaire List), with a little forethought, a property portfolio is an almost surefire ticket to a solid income.
A survey of landlords in early 2021 found that the typical portfolio was worth around £1.2 million and generated an annual gross rental income of £54,000. However, while having a property portfolio may sound like the ideal move, setting one up is easier said than done. From finding the right property to sorting out all of the legalities, there’s a lot to consider. We’ve created this guide to help your journey to being a property investor a smooth one.
Set clear goals
When creating your portfolio, you must consider what exactly it is you’re trying to achieve. Understanding the path you want to go down helps you create a long-term plan that gives you the best chance of succeeding.
At the most basic level, you can buy properties to sell on for a profit at a later date — otherwise known as “flipping” — or purchase them to rent out. Although property flipping isn’t exactly straightforward, it doesn’t have as many variations as being a landlord does. For example, you could rent out homes to a whole host of different people, including professionals, students and those on housing benefits. You can also buy non-residential properties, such as commercial buildings or holiday homes, and rent them out.
Do your research
After working out the kind of portfolio you’re building, it’s time to conduct some extensive research to help you find the right properties in the right areas. Some useful strategies during this stage include:
- Talk to a local estate agent about current market trends, like a rise in demand for annexes in 2022.
- Find out the best buy-to-let areas in the UK to help maximise your return on investment.
- Run an online sales comparison to see how much properties in your chosen area are going for.
- Join a landlord or property investment community to learn from those who are experienced in this type of venture.
- Consider if the area you’ve chosen is suitable for your tenant of choice. For instance, if you want to rent to families — are there enough schools around?
Create an offer strategy
Once you’re set on a particular property, it pays to have an offer strategy. For instance, you should give yourself a maximum price you’ll pay to generate the best return on your investment. If you’re in a rush to secure a property, it may make sense to budget for paying a little over the asking price to give you a better chance of doing so quickly. On the other hand, should you have more time, you may want to offer under this price, something that could potentially land you a bargain.
Your plan of action will also be influenced by the seller, as they may need to move quickly themselves, and could be willing to sell for less than market value. Another factor your strategy could be impacted by is whether you’re in a buyer’s or seller’s market — the former being where supply exceeds demand and the latter being the opposite. With a buyer’s market you’ll face more competition, which could mean moving quicker and paying over the odds. In a seller’s market you’ll have more options and a greater opportunity for cut-price deals.
You may also want to consider a “below market value” (BMV) strategy, which involves buying a property that requires work but has good investment potential.
Sort out the administrative side of things
Being a property investor involves lots of admin, including in the following areas:
Keep an eye on your finances, ensuring that your income covers your mortgage payments and any other outgoings if this is your sole or main source of income. You should also have an emergency fund should something go awry, such as your tenant moving out unexpectedly because of an incident like a flood.
Getting property owner’s insurance is crucial, as this protects both you and your renters in the event of something like property damage or tenant accidents. As noted by Brisco Business Insurance: “Without an insurance policy, you face the risk of losing a large sum of money to foot the bill for any repairs or compensation claims. This could have devastating consequences on your finances.” They also note that not having insurance could be bad for your business, as “you have a duty to protect your tenants, and insurance demonstrates your accountability.”
There are so many legalities to think about as a property investor, such as leases, titles and tax considerations. As such, it’s essential to get legal advice to ensure you’re not falling foul of any laws.
Choose renters carefully
If you’re going down the route of renting out your property to tenants, finding the right ones is vital in making a good return on your investment. The better your renters are, the more likely they are to stay longer term. This means there is less chance of your property being unoccupied, which in turn equals more money in your pocket. When it comes to finding the best tenants, there are certain steps you can take, including:
- Obtain references from previous landlords.
- Perform checks — these include asking for proof of income and running a credit check.
- Meet your applicants beforehand. This is the best way to form an opinion on them, as it is hard to really know what somebody’s like via email or over the phone.
Of course, once you’ve found the right people and they’ve moved into the property, you need to stick to your end of the bargain too. It’s therefore critical that you’re approachable, respond quickly to repairs and maintenance requests, ensure the property is safe, and give your tenants as much notice as you can before visiting.
The above information does not constitute any form of advice or recommendation by London Loves Property and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Property bears no responsibility for any gains or losses.