Building a property portfolio is a way of forming a secure investment that provides long term returns. However, to do it well requires investing both time and money wisely. Having been involved in the industry for over 30 years, I have learned valuable lessons for anyone looking to build their own property portfolio.
Before you can begin to build an effective property portfolio, you must first establish the purpose of your investment. Setting clear goals for yourself before you begin you commit to property investment is essential. Most people will look to build a property portfolio for one of two reasons: to see their capital appreciate over time or to derive a sustained income through collecting rent by becoming a landlord. Ideally, investors will look to benefit from a mixture of the two. Whatever your motivation, make sure you always keep sight of your end goal — this will help maintain perspective and ensure you are making calculated decisions. You must also establish the types of property you invest in, residential, retail, restaurants, warehouse and storage, or office spaces. Here you must play to your strengths and ensure you fully understand the market you intend to focus on and the external factors that could impact your investment.
Having done the groundwork, it’s time to work out whether or not you are practically ready to make an investment. Although many websites claim that property investment is easy, do not be fooled: building up a property portfolio is a big commitment, the property market can vary and will inevitably have its ups and downs. It is essential that any would-be investor is realistic. Don’t invest if you don’t have the funds (as a rule of thumb, below £100k in equity or liquid funds will probably not be enough) and don’t try and grow ambitiously if you cannot guarantee the cashflow. Property in its very nature is a long-term investment and therefore you should not risk capital that you may come to rely upon in the short term.
If you’re are satisfied that you are in a strong enough financial position to make an investment, then next question is where to invest. This is the million-dollar question and largely depends on circumstances. Maintaining a property and managing tenants is a full-time responsibility. Understanding the area and having relationships with local suppliers and service providers is essential. You may wish to employ a property manager to reduce your burden, however this will impact your potential returns.
However, with house prices currently falling at their fastest rate in London in 10 years, now is a great time to buy in the capital with low prices and while the rental demand remains high. London is notorious for high property prices, so you are likely to soon see returns on your investment.
Growing long-term, you must remain cautious when acquiring additional properties. You must be aware of the difference between short-term volatility and long-term growth. Most importantly, you must keep a firm grip on your debt position. Avoiding cross-collateralisation is essential in ensuring that any potential issues with one property doesn’t compound across the rest of your portfolio.
Making investments at the right time is crucial. If the price looks right and you’re confident that you have the ability to fund and manage the property, my advice would always be to invest. However, remember why you set out to build a portfolio in the first place. Whether that is to become a high-flying landlord or just to have a retirement nest egg, keeping sight of the purpose of your portfolio is crucial in staying grounded and making sensible investments.