The UK property market has long been an attractive investment vehicle amongst both UK and overseas investors. Over the past 10 years in particular, prices have mostly been on an upward trajectory and the rise of ‘Generation Rent’ has anchored more tenants in the rental market, making Buy-to-Let property a potentially lucrative asset.
As well as this consistent growth and ongoing demand, the performance of the market throughout the global pandemic has only highlighted its resilience and strengthened its appeal to investors. As a result, the Buy-to-Let market is seeing more activity than ever before, but how exactly do investors build a successful property portfolio?
SevenCapital, a leading UK property investment and development company, discusses how to invest for success at every step:
Have a Clear Financial Plan
While you might think the first step of investing in property is deciding on the whats, wheres and whens, for the most part, building a successful empire starts much earlier on. Establishing a clear financial plan is key, with this including everything from your budget and finance options, to your long-term goals.
Before you can begin to think about what type of property you want to invest in, you first need to know your budget – how much can you afford to spend? Here, it’s important to remember that you don’t want to stretch yourself too far – your money will be tied up in a property and for the most part, won’t be accessible. It’s also important to remember this is an investment. You need to have a sensible budget that can be used solely on your assets – if you might need some of that budget in the near future, don’t invest it.
Once you know the figure you can commit to and how much you can put aside for a deposit, you’ll be able to decide on which type of mortgage you want to go for – if you need one. The most common mortgage options are capital repayment and interest-only, with the majority of investors often choosing the latter.
Unlike capital repayment mortgages, which require you to pay back both your loan and interest each month, an interest-only finance option is often more affordable on a monthly basis. As you’re only paying back the interest on your loan, your monthly rent will likely cover this cost with some left over, which investors usually leverage to build their portfolios.
However, which option you choose will depend on your goals, if you’re wanting to build a substantial portfolio over a few years, an interest-only mortgage might be the better option for you, but if you’re looking to own a property outright at the end of your mortgage term, a capital repayment mortgage could be favourable. As with any financial decision, it’s best to discuss this with a professional.
Do Thorough Research
Establishing your financial position is important for many reasons, not only will it allow you to invest within your means, but it often makes choosing a location and property type more straightforward.
At this stage, research is key. When looking for a Buy-to-Let location, you’ll want to look for transport links and regeneration schemes. The reason behind this is demand, a metric that has the potential to make or break your investment. If your Buy-to-Let property is close to a train station or along the London commuter belt, for example, it’s likely that your property will appeal to transient tenants – a growing population across the UK.
This means that your rental property will be tenanted more often, bringing in regular rental income and avoiding costly void periods.
That said, locations undergoing regeneration are arguably more lucrative investment spots if you also consider the opportunity for considerable capital growth. For example, Bracknell – a town in the South East – is in the midst of its biggest regeneration scheme to date, which is expected to push property prices up by 19% by 2025. Not only will this regeneration bring more residents to Bracknell, but property prices are relatively affordable compared to nearby markets, offering more opportunities for capital appreciation.
Deciding on an investment location will usually make choosing a property type much easier. Generally speaking, apartments are in higher demand in city centres, whereas houses are usually more desirable in suburban areas. So, if you’ve chosen Birmingham city centre, for example, you’ll probably find yourself gravitating towards apartments for the best returns and higher demand.
Choosing the right property type is also largely dependent on the main demographic that lives in the area. If you’re investing with the intention of targeting young professionals working nearby, you might be better suited to choosing an apartment over a house, for example.
Build and Diversify Your Portfolio
While a single Buy-to-Let property can often be enough for many investors to reach their financial goals, building a portfolio can often be the end goal. A property portfolio made up of multiple assets can not only deliver several income streams, but also provide diversification, which in theory should minimise the impact of any void periods.
If you’re looking to build your existing portfolio it’s worth considering diversifying your assets. Diversification can be achieved in many different ways, but the most common avenues are typically by location and property type.
By having a combination of properties across multiple city centres and suburban areas, you’ll be able to invest at different price points and benefit from varying demand from different demographics, meaning you’re less at risk if market sentiment shifts.
Additionally, investing in multiple locations can safeguard your entire portfolio from void periods. As we have seen over the past 18 months, trends in tenant demand can shift from one location to another, so having properties exclusively in one location could put you at greater risk of void periods.
Similarly, diversifying with different property types can also increase the resilience of your portfolio. Apartments and houses usually appeal to different demographics – young professionals and graduates typically go for apartments, while houses are usually more popular with couples and families. Much like investing in different locations, having this diversity can make for a better performing portfolio.
Investing in Buy-to-Let property is one of the most flexible forms of investing and can be incredibly adaptable for reaching financial objectives.
Fundamentally, there are several different ways investors can maximise their success, from having a solid financial plan to carrying out thorough research. Diversification is the final stage of Buy-to-Let investing, but is arguably the most effective. By having a diverse portfolio, you’ll be maximising the potential resilience of your assets while benefiting from multiple income streams.