Investing in a buy-to-let property could be the start of a much larger portfolio in years to come. The rental market is currently booming and when managed correctly, it can be extremely financially rewarding. If you are thinking of expanding your property investment portfolio, here are a number of essential steps to follow.
Set your goals
Be clear on what you want to achieve with your investment. Is it to create a regular stream of income or to grow your capital? Perhaps you want to achieve both by investing in buy-to-let properties. Once you know what your ultimate aims are then it becomes much easier to put together a clear plan. Start by identifying the type of property you want to purchase and how your portfolio can be developed.
One step at a time
Given the finance and stakes involved it makes sense to start small. Build your portfolio slowly and carefully so you can learn as you go without making costly mistakes. Your first investment is key, so think about its location and how hands-on you want to be. It is important that you make your first investment a success and a footprint for future property investments Do thorough research so you can understand the pros and cons of each option.
Start with a low price
Property prices are slowly starting to lower across the board and many experts expect this trend to continue. While not the case everywhere in the UK, lower demand levels are being experienced in many regions making it more of a buyer’s market so take confidence in starting your purchase bid low. Bidding wars are rare nowadays, so you have more to gain by starting at a lower point and if it’s rejected you can simply raise it a little higher.
Take care of your tenants
Getting the right property is important but the people who will be living there day-in-day-out should also be taken care of. Keeping them happy will ensure they are more likely to remain in the property for a longer period of time. Finding good tenants that take care of the property, pay on time and give you no hassle are worth their weight in gold. If you need help sourcing high quality tenants, estate agents – especially those that specialise in property management, offer a wealth of invaluable experience that can make all the difference.
Manage your cash flow
You know the ultimate goal you want to achieve from building a property portfolio, so it pays to keep an eye on the details that will help you get there. This means ensuring mortgage payments on the property and other outgoings are covered by the rental income. Developing a property portfolio is like building a business. Cash flow is fundamental to this, so make sure it is being managed well enough to allow you to keep growing and investing in new opportunities as and when they arise.
Avoid cross-collateralisation
As you acquire more properties, you will also be taking on additional mortgages and debt. The key is to avoid borrowing against more than one individual property at any given time. This is referred to as cross-collateralisation, which happens when two or more properties are linked together to secure multiple loans from a single lender. Always make sure the mortgage can be covered, as you don’t want to be in a position where a property must be sold to deal with a large debt.
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