Property is not a get rich quick scheme and getting started can be daunting but property still represents for many the best way to receive passive income and plan their pension.
The private rented sector continues to grow at record levels but planning your strategy to maximise your returns, minimising mistakes can lead to a highly valuable financial outcome.
Why should you expand your portfolio? The biggest profits only come as a result of expansion. As you expand your portfolio, your profit-making potential increases; an investor with ten properties has twice the profit-making potential of an investor with five properties.
A larger portfolio also allows you to spread risk more effectively. Void periods can be financially crippling if you rely on a single property, but the associated risk drops exponentially with each addition to your portfolio. You may also find it easier to secure credit with a larger portfolio, as you will have more collateral against which to secure loans.
Identify your goals
The first step with any property investment is to think about your financial aims. If you are starting out its even more important. Are you primarily interested in capital appreciation? Or do you want to invest in property that will provide a sustainable rental income or cash flow? Or, perhaps a combination of the two?
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Your answer to these questions will help to determine your first property purchase, and the way in which you build your portfolio. In order to start on the right foot, you need to have your goals and priorities in place from the very beginning.
Decide the structure
Buying property as a Ltd company has never been more popular and if you a higher rate tax payer it could be the most cost effective way to go however we recommend speaking to a tax adviser to get the best advice and sound financial plan for building your portfolio.
Start with what you know
It’s not generally recommended that new investors build a property portfolio with multiple properties from the off. Instead, you should think about starting small and building sustainably. Stick to areas that you know well and learn as much as possible about the property prices and rental values in that area. The best places to invest in property are rarely around the corner and if you’re not from Glasgow delegate to an expert and be confident that Glasgow consistently rates as one of the best yielding areas in the country for rental returns.
Don’t be scared to offer below the asking price the worst that can happen is that you’re turned down. Finding and buying property below market value is the easiest way to ensure a good return on your investment.
As you start your property portfolio, make sure that you keep an eye on your key information; does your rental income cover your mortgage payments and other outgoings, while still providing a reasonable return? Are you managing void periods sensibly?
Identify the most important numbers that you need to track, and make sure that you keep a constant eye on them. You need data to back up your investments as you grow your portfolio – again, treat this part of the exercise just as you would if you were running a business.
If you want to invest for income, then you should be investing in properties with positive cash flow and a high rental yield.
It’s important not to forget about the tenants. Who are you marketing to? What type of tenant are they and what do they expect? You need to design and plan your property investment around the end user, student, professional or families. Work hard to ensure that your tenants are satisfied, both in order to maximise tenancy lengths and to minimise void periods.
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However, you also need to keep on top of the business side of the relationship, and that begins with choosing the right tenant. If you’re doing this yourself, rather than through a letting agent, make sure they are thoroughly referenced and your paperwork is in order.
Start slow and learn quick
Don’t run before you can walk. If you want to build a long-term property portfolio, you need to be cautious however the best way to build is to borrow and leveraging your existing equity position (called gearing) to grow your portfolio is a tried and tested route to growth.
Use property experts and professionals
Leverage the experience of others saves you money, time and effort, stopping you from making avoidable mistakes. Surround yourself with property experts, who will be able to discuss the best investment strategies to meet your objectives. They will help you decide where to buy and source the best property investment opportunities in those locations. Use a suitably qualified and recommended solicitor who should make sure that contracts are watertight. Benefit from a buy-to-let mortgage broker, who should get you the best financing deal. Hire a good accountant, who should help you minimise tax liabilities. And above all employ the services of a good reputable Glasgow letting agent who works for your and your best interests.
What’s your exit?
What is the ultimate goal? Are you looking for a sustainable retirement income? Or do you intend to liquidise your investments at some point in the future? By keeping your exit strategy in mind at every step, you can help to ensure that you make sensible investment decisions throughout.
Property investment is a long-term strategy to build wealth slowly and steadily. However, sticking to these nine rules should help to accelerate the speed at which you build a profitable buy-to-let portfolio.