Top 5 tips for building a property portfolio
- Know your attitude to risk
The best person to assist you in calculating your attitude to financial risk is an independent financial advisor. Property investment, together with the purchase of any major single asset, carries risks. You will need to be prepared for capital losses if the housing market declines, profit wipe out if you are borrowing the fund the purchase and mortgage interest rates increase (as they did in 2022), the risk of no income at all through gaps in occupancy (or low rates of occupancy for holiday lets) and the cashflow impact of having to carry out significant repairs during or after a tenancy.
The risks can be reduced by choosing the appropriate category, type and location of property, but they cannot be fully eradicated.
- Know your funding strategy and mortgage broker
Purchasing a property to let you causes some of these lenders more concern than if the property is to be used for owner occupation. Their expectation is that you will be less careful with a property you are letting out than you would be with your own home. This is why the mortgage interest rates are often much higher for a “buy to let”. Mortgage products can greatly differ and it is therefore very important to find the right mortgage broker and allow them to advise you of the lenders which best fit your particular circumstances. It is important that the mortgage broker can look at the whole of the market for mortgage products and that they have a good working knowledge of the ease of process of some lenders and the various fees they charge, rather than simply looking at the interest rate alone.
- Know the priorities of your tenant market
Shorter term tenants may prioritise convenience over comfort or proximity to their current workplace over the ability to travel further afield. This can have an impact on their needs for parking spaces or a town centre location. Family homes will tend to be favoured by longer term tenants.
- Can I let out the property?
Most long leases of flats contain some form of restriction against subletting, whether that be a prohibition on subletting part (i.e. a parking space or self-contained room), a restriction on certain types of tenancies or a restriction on the length of tenancies, usually to exclude holiday lets. There may also be planning consent for the original construction or conversion of a property that set out certain criteria for future use. Some long leases restrict the age of the occupier (or the oldest or youngest of the occupiers) and some leases, although not prohibiting subletting, have potentially punitive fees for registering sublettings and providing information about sub tenants to the managing agents of the block.
If you are looking to sublet the property then progressing well into the transaction without this being checked can potentially be expensive and delay the time between releasing funds from investments and purchasing and letting a property.
- Consider ease of maintenance
A property purchased at the other end of the country may well be a bargain but purchasing a property without knowing the local rental market vastly increases the risk. You will also need to consider how the property is monitored and how routine maintenance and some more major repairs are carried out. Having a great deal of personal knowledge about fixing appliances and general property maintenance will be of little use when a visit to the property involves a 600-mile round trip! Some property landlords overcome this by employing a local agent to oversee a property and make regular visits, but you will need to consider how you are going to hold those agents to account for the quality of monitoring being carried out.
There are many practical, financial and legal factors that will influence success as a property investor. Commercial and residential property investments have been attractive in recent years due to the income outstripping that available from other assets, together with increasing capital values as house prices continue to rise. It can be all too comfortable to think that these same market conditions will continue indefinitely. It may or may not be the case, but by making sensible practical, financial and legal decisions and taking the appropriate advice now, you may reduce or eradicate the pain later on. This is where Daniel and his team at Rawlins Davy Reeves will make a significant difference to the potential success of your investment.
dstanton@rawlinsdavyreeves.com / 01202 674425
