How To Build a UK Property Portfolio in 2021
While the initial thought of starting a portfolio can be daunting, it’s a smart financial decision that can earn you good long-term returns - particularly if you’re willing to do a little bit of research before you invest.
If you’re looking to start a property portfolio in 2021, or perhaps thinking about making the leap from owning one investment property to owning several, you’ll need to have a long-term view and be prepared to put time and effort in. However, with the right tools to inform your decision, property investment doesn’t need to be complicated.
Property investment strategy
When starting a property portfolio, it’s important to walk before you run. You won't be able to create a large portfolio immediately; instead, start small and build your portfolio one property at a time at a sustainable level.
The first step is to identify your property investment aims and goals. Are you interested in purchasing property that will appreciate in value over time? Or would you prefer to invest in property that will provide a regular rental income? In most cases, you’ll ideally want to combine both of these scenarios.
How hands-on do you want to be? For example, do you have the time to regularly keep on top of any property maintenance? If you’re intending on overseeing most tasks yourself, it’s likely that you’ll want to purchase a property in close proximity to your existing home.
If you’re happy entrusting maintenance and administration to a third-party, this puts you in a better position to invest further afield.
How much money do I need to invest in property?
There's no one-size-fits all answer here. How much money you need to start investing property will vary according to the type of property you want to purchase. If the property can be largely funded with a mortgage that will significantly lower your entry cost, while a cash buyers only property will need a higher initial investment.
Our friends at Track Capital have written a great article that covers this in more detail: How much money do I need to invest in property?
How do I start investing in property?
Property is one of the most common investment types in the UK, and when you start investing in property, you’ll want to start small, and make a low offer. The stamp duty holiday in 2021 means it's a good time to buy, saving you on some early transaction costs.
If you’re looking to start a property portfolio in the UK, with first step is researching areas. Every year, potential property investors rush in without doing any research, only to find themselves failing. By using the wide range of tools PropertyData provides, you can make better investment decisions.
Have a look at the current UK rental yield hotspots, as you may be more likely to enjoy high rental yields by investing in an emerging location that isn't necessarily on your doorstep.
Our Local Data tool is another great place to start, because it can show you detailed analytics including pricing, rental market, demand and demographics for any local area.
If you're prepared to undertake building works, buying an unmodernised property is a great way to save money on the purchase, and add value to the property with renovations.
The importance of tenants
When you become a buy-to-let investor, your tenants are your customers, and you should put their satisfaction front of mind. This helps to minimise periods where your property is vacant, and will also help to maximise tenancy lengths. With a well-maintained property, you’ll also be able to increase your rental yield, as most tenants are generally happy to pay slightly more for their ideal home.
You’ll also want to choose the right tenants to ensure your investment is protected from any potential damage. You may want to take charge of this yourself, or alternatively use the services of a letting agent to do the work for you for a small fee.
What is portfolio property management?
Property portfolio management is the process of making the right decisions to improve the profitability of your investment. It involves regularly monitoring overheads, strategically refinancing and minimising rental voids to enhance performance. You can also achieve gains by expanding your portfolio, increasing capital growth and improving rental yields.
As part of your property portfolio management, you’ll want to be able to use your existing assets to help raise additional capital to fund expansion. This will allow you to diversify as an investor and spread your investments across a variety of different areas or property types.
Savvy portfolio management means minimising risk, safeguarding against property value fluctuations and establishing a regular and sustainable income. At PropertyData, we provide tools to help buy-to-let investors make smarter property portfolio management decisions.
How do I build a property portfolio in the UK?
If you’re looking to successfully build a property portfolio in the UK, it’s important to grow cautiously. To do this, you’re going to need to keep track of a range of indicators and metrics which suggest and predict volatility - both in the property market, and the economy in general. This will help you to make smarter investments and to decide when the time is right to make a purchase or sale.
To build your property portfolio, you’re also going to need to pay close attention to your current debt position and monthly cash flow as key performance indicators. You’ll want your rental income to cover mortgage payments as well as maintenance costs, administration fees and other outgoings while still providing you with reasonable returns.
Make sure you have a healthy buffer, so if interest rates rise you can still make your debt payments.
Ultimately, the key to successfully growing a property portfolio is to treat it like any other business. Keep data to back up your investments, and maximise revenues wherever and whenever you can, by making smart purchases with high rental yields and keeping rental voids to a minimum.
Property portfolio diversification
Successful property investment strategies tend to focus on portfolio diversity. This involves spreading the risk across several different property types, instead of putting all your eggs in one basket.
Take student rental properties for example - many property investors who focused solely on city centre student rents experienced a huge drop in revenues in 2020. The coronavirus pandemic meant that millions of students spent the last academic year learning remotely, and the knock-on effect was that demand for student housing was at a historic low in some parts of the UK. By diversifying your property portfolio, you’re spreading your risk as opposed to relying on a single demographic for your rental income.
Property portfolio exit strategy
As with all investments, it’s important to have a property portfolio exit strategy. Whether you’re looking to generate a sustainable income for your retirement or intending on liquidising your assets in the future, a good exit strategy will ensure that you make sensible investment decisions at every juncture on your property portfolio journey.
Selling one property per year, rather than multiple properties in one go, can be a good way to minimise tax by taking advantage of your capital gains tax allowances.
Start a property portfolio today
If you’re looking to start or build a property portfolio in 2021, PropertyData could provide you with access to key metrics which will help you to make smarter property investment decisions, identify rental yield hotspots and develop a diverse portfolio across a variety of emerging areas.
If you're interested to learn more about how PropertyData can help, why not have a look at our tutorials which show how you can use PropertyData to Research areas, Source property opportunities and Evaluate potential purchases.