Whether you’re an existing landlord looking to expand your property portfolio, or you’re keen to start building a portfolio, we look at some of the key points to consider before investing further.
A lot of landlords may begin to build their property portfolio close to where they live. This is because they’re aware of the market in that area and can be on-hand to manage the properties. Others may prefer to choose an area where rental yields are particularly favourable and there is a strong tenant market.
When building your portfolio, think about what would appeal to a potential tenant. Does the area have good schools? Is it on a commuter belt with good transport links? Is it a student town? Picking an area that has a lot going for it means that you’ll never be short of tenants and, if you need to sell your house fast, you’ll be able to get a buyer easily.
Consider the costs of any houses you look at and decide whether the rental yield will be sufficient. Don’t forget to factor in maintenance costs and how you will cover any bills and the mortgage if the property ends up empty for a few months. If you have a tracker mortgage, be prepared for the rate to change over time and keep an eye on it so you don’t get any nasty surprises.
Whether you have an established portfolio already, or you’re a first-time investor looking for a project, don’t rule out properties that need some TLC. Renovating a property, if it’s in a desirable area, will boost its value. You can negotiate more effectively at the buying stage in order to get a good price that is low enough to leave you enough cash to cover the refurbishment.
Buying-to-sell, also known as “flipping” has the sole aim of making a profit from buying at one price and selling for a profit. There’s no steady income or long-term growth, but you can generate large amounts of cash quickly and, if you become successful at noticing great opportunities to flip, you could make a large return on investment over time that will far outweigh that of a regular rental income.
You do have to be confident in the properties you’re choosing to do up and sell on because as soon as you stop doing it, the money will also stop. It isn’t an easy option for an amateur so don’t rush into this unless you have enough experience or feel confident in your abilities.
House in Multiple Occupation (HMOs)
This is a house share. A single property is rented out to a group of individuals on a room-by-room basis. This tends to generate more revenue than letting out the property as a whole. This is because you can adapt the property so that a reception room or dining room becomes another bedroom that you can let out.
The thing to be aware of with HMOs is that they generally have to be furnished, have certain bills included in the rental price and there may be more wear and tear due to how many people are living there. However, it’s a fairly safe income generator because if one tenant stops paying, you’ve still got income from the other people living within the property.
If you’re considering an HMO then make sure you check what the regulations are for them in your area. Some councils are refusing permission for new ones to be set up in certain areas or are taking more action to regulate them, so be informed before diving in.
If In Doubt
If you’re still not sure about what type of properties to invest in, or what kind of tenants you want to attract, despite doing your research, consider investing in a couple of different types. Over time you can compare the performance of the different types of properties and their locations in order to review your portfolio in the future. You can adapt, expand or streamline your property portfolio throughout your investment career so, if you have the money, it would be wise to invest in a range of properties and modify your portfolio as you progress.