Pay as you grow

The key to successful property investment is establishing an extensive portfolio. A portfolio is two or more investment properties, and when purchasing multiple properties you need to maximise the potential of each investment and be prepared for all eventualities. Always remember to treat your portfolio as if you are running a business.

Do:

Set goals and be clear about what you want to achieve. Think about why you are investing in property.

Do your homework on local agents. Make sure you have the best in the business and that they have a strong property management department. 

Do contextualise every property you are considering buying with a critical eye. Look at the area and analyse the type of person who would want to live there. For example, if you’re next to a hospital then you might want to buy a two bedroom, two bathroom flat for two nurses sharing. Or, if you’re investing in a regeneration area, there may be more demand for one-bedroom flats.

Do create instant value for each property you buy – either by purchasing a property that needs work where immediate value can be added, buying below market price at auction or buying off-plan at a discount.

Do research independent surveys on property and rental values to assess likely capital growth - different types of property will increase in value at different rates.

Do put advice from estate agents into context as they will have their own agenda and so may not give impartial advice.

Do always have a contingency fund in case tenants don’t pay rent, the property is empty for a period of time or needs refurbishment. There will always be unexpected expenses. 

Do keep your eye on the marketplace and the competition. Learn rental figures from a sales point of view, and remember that agents may have 7 or 8 properties the same as yours. Learn what will make your property the most desirable to tenants.

Do spread your property portfolio across regions and even countries when choosing properties. Diversifying across geographic areas mitigates risk if one area goes into decline. In this way investments can subsidise each other.

Do treat your portfolio as a business. Even if rental income is less than mortgage payments, capital growth on the property still means you are making money. You will also be making a return on the value of the whole property rather than just the amount you invested as a deposit. Always make sure you manage your cash flow.

Do plan an exit strategy as with any business. A profitable exit will require some long term planning.

Don’t:

Don’t try to manage your property on your own if buying far away. If the boiler breaks down in the middle of the night an agent will be able to be there in an instant.

Don’t get carried away with information on how much an area has increased in value. Carefully analyse the statistics and assess if property prices across the board have increased or if the increase is due to a specific type of property, and doesn’t relate to the type of property you are buying.

Don’t forget to get the correct insurance. Contents insurance, building insurance and public liability insurance will give you the protection you need and the peace of mind you want.

Don’t pay for a property with cash as tying up all your capital in one property is not a good use of capital. The same money could be used to put down deposits on a number of properties.

Don’t be afraid of or ignore accountancy and financing skills. Invest in or develop your own portfolio management tool to monitor all the financial information about each of your properties and to allow you to make informed decisions when looking to invest in further properties.

Don’t overextend yourself – a profit and loss forecast will enable you to decide the right pace and timing for building your portfolio.

Don’t try and do it all on your own – put the right team of experts in place from mortgage brokers, accountants, legal advisors, insurance brokers, letting and managing agents and a maintenance team for when things go wrong.

Don’t buy a property before deciding what type of tenants you want to attract. Decide whether you want to have a mix of tenants in your portfolio as well as buying properties in different geographic locations.

Don’t sell any properties unless absolutely necessary or you’re changing your portfolio strategy. Building a property portfolio is based on appreciating assets.

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