Are you thinking about building a property portfolio in 2023? If this is something that has piqued your interest in recent months, look no further than this comprehensive guide.

The current living crisis has compelled many to rethink their income strategies and ponder how they can make extra cash to supplement their income.  Furthermore, job uncertainty is creeping higher as many businesses struggle to keep the lights on with skyrocketing energy costs. Indeed, the Government is reducing its financial support of most types of businesses in April with the introduction of its “Energy Bills Discount Scheme“.

In this introductory guide for property investors, we will cover all you need to know about property portfolios by providing you with 10 easy-to-implement guidelines for building a lucrative buy-to-let portfolio.

Whether you’re interested in expanding an existing portfolio, starting one from scratch, or just looking for a property portfolio for sale in the UK, we’ve got the answers you’re looking for.

Let’s start with defining a property portfolio

Before learning how to create your own property portfolio, you need to have a firm grasp on what one is.

A property portfolio, in its simplest form, is a collection of real estate holdings owned by an individual, a group of individuals, or a corporation. In fact, many people now set up their buy-to-let properties as a business to take advantage of the tax benefits that come with this status. However, despite the tax advantages of this strategy, there are also drawbacks, which is why you will need to research it in depth to see if it will suit your circumstances and investing goals.

In the UK, accumulating a property portfolio means buying many investment properties with the intention of renting them out to tenants in order to get a higher return on investment than would be possible with a single investment property.

An important aspect of building a successful portfolio is diversification of properties and areas. If one of an investor’s properties experiences problems, the remaining properties in the portfolio will still provide rental revenue and profits.

Owning a substantial portfolio of properties is often required for those who wish to learn how to start a rental property business and transform their buy-to-let efforts into a full-time job.

Top 10 tips for 2023

Have your finances in order

If you want to know how to develop a buy-to-let portfolio, make sure you’re financially prepared for investing. This tip comes first because it is the secure foundation upon which all the others will be built.

Putting together a real estate portfolio from scratch can be expensive, and there are a number of ongoing costs to think about.

There is official data from the Land Registry that shows the average property valuation in the UK is now at £296,422.

The demand from buyers is presently at a historic high, having doubled since before the pandemic outbreak. While it is possible to build a buy-to-let portfolio fairly cheaply, you should be aware that you may have to invest a substantial sum of money at the outset.

When deciding whether or not to invest in a rental property, you should also think about the ongoing costs.

You will likely encounter the following costs:

• Stamp duty
• Property management fee (if you use one)
• Income tax on profits
• Maintenance expenses
• Ground rent
• Capital gains tax
• The cost of a mortgage
• Landlord’s insurance

Carefully consider your goals

Establishing your motivation for creating a buy-to-let portfolio is the next stage. These goals should not be vague but clear and concrete. These goals will set the mark for what you are aiming for and guide your investing actions down the line.

When building your property portfolio, it is vital to give some thought to your goals, since they will have a direct bearing on the investing strategy you ultimately settle on.

The questions to ponder are:

• When it comes to your buy-to-let portfolio, how fast do you need to start making a profit?
• Is it that you want to save up for retirement that motivates you, or do you just need some additional cash now to supplement your regular income?
• How long do you plan on holding your buy-to-let properties?

If you ask yourself these questions, you might be able to figure out a better plan for buying more property.

Assume, for the sake of argument, that you are saving for retirement and are fine with having your money tied up for the next decade or so.

If this is you, it would be wise to begin your portfolio with residential real estate, as it has historically had the highest rates of capital growth. This approach is known as a growth-focused strategy.

However, if you’re seeking a short-term income-focused approach, student housing may be a good fit, as it offers low capital development potential but high yields with immediate rental income. Compared to residential properties, these types of properties don’t tend to increase a great deal in value.

Before you buy your first property and start building a portfolio, you should think carefully about what you want to get out of investing and how you want to do it.

Research which areas would be best to invest

Doing some market research on potential areas to invest in is a crucial step in building a successful buy-to-let portfolio. The property details and location are like two sides of the same investing coin. Both are vital to consider.

There are significant differences across regions in the United Kingdom in terms of investment possibilities, price growth, rental demand, and other factors that make certain places more suited for property purchases than others.

To drive home how important this step is, we state once again: location, location, location is a key ingredient in successful property investing.

There are several things to think about when conducting research. In particular, they are:

• Affordability of the properties
• Monthly rent
• Profits from rental returns
• Potential for growth with housing prices
• A young demographic for high rental demands

Investing in real estate in a city that satisfies all of these requirements would be wise. Of course, property in such locations tends to be more expensive, but the returns will be much greater.

Begin with a small investment portfolio and grow from there

Although there are many excellent investment options available at the moment, it is best to take things slowly at first and go carefully when building a buy-to-let property portfolio. Sometimes this means reigning in lots of enthusiasm so you can tread carefully and make sound judgement calls.

You can get your feet wet in the UK real estate market and start generating profits with only one investment property to get you going. This will allow you to build up your knowledge of how the market works and get a much better understanding of what’s involved with property investing and what your responsibilities as a landlord are.

Then, after a while, you could add to your portfolio by putting your profits back into a different type of asset.

Even if everything is going smoothly with your first property, resist the temptation to jump in and start expanding too soon. To the contrary, you should take your time to keep debt levels low and ensure you have the money to invest in your portfolio’s growth.

If something does go wrong, you will have less financial damage than if you had invested in numerous homes simultaneously.

Before you start investing, you might also want to talk to an independent financial advisor. They can look at your finances and give you advice on the best way to move forward.

Consider who your tenants will be

Investors in real estate frequently overlook the need to consider the demographics of their ideal renter when making purchases.

Don’t fall into the mistake of forgetting about the individuals who will be living in your rental units since you’re so preoccupied with the marketing and management of your buy-to-let. Maintaining a satisfied tenant base is crucial to minimising void periods and ensuring a constant stream of rental income.

The success of a rental property portfolio depends on the selection of reliable tenants. To attract and retain renters, you must understand what motivates them so that you can provide a variety of properties that pique their interest.

According to Benham and Reeves, tenant demand has shifted significantly since the COVID-19 lockdowns, with tenants prioritising a variety of amenities while evaluating potential properties.

When it comes to tenants finding the right rental properties, people who work from home or on a hybrid schedule prioritise having access to high-speed Internet and outdoor space.

Adding new builds to your portfolio is a great method to ensure high demand from renters, especially among the younger demographic.

If you’re looking to acquire flats to rent to young professionals, it’s especially important to prioritise buildings with these features.

Diversification is important  

The greatest methods of investing in real estate involve a variety of approaches to building a portfolio of properties. Part of this is to have more than one way to invest your money and not just relying on one.

If you just buy one type of property, you’re putting your entire portfolio at greater risk if that one falls out of favour with tenants, reducing its potential for growth.

Diversifying your holdings across a number of different projects is a good way to build a successful portfolio of investment properties and keep a steady stream of income.

Here’s an example of what we are talking about. Let’s say the majority of your portfolio consists of student housing complexes in a single city’s downtown. If that city’s real estate market were to experience a downturn, your whole portfolio would be negatively impacted.

There are two strategies to spread risk in a real estate portfolio.

• Pick a property class other than what you’ve been investing in before, such as a residential property type or student accommodation. If you already have a house for a family, you could think about buying an apartment for a single person.
• Diversify your holdings by purchasing real estate in many locations. For instance, a property portfolio may include investments in Liverpool, Manchester, and Birmingham.

Diversification is one of the most important factors to think about when building a real estate investing portfolio. Diversify your assets so that even if one business fails or is having trouble, you can still make money from the others. This will help protect your finances against future problems.

Consider hiring a property management company

There’s a common misconception that adding properties to your portfolio means taking on additional work as a landlord. Of course, if you decide to self-manage, then this will be the case.

The stresses of tenant screening, property management, and troubleshooting are only the beginning of a landlord’s day. Some people can handle these problems and even enjoy them, but others have trouble and need help managing their properties.

This is particularly true for people who lead busy work and family lives and hope to supplement their income with rental property.

When you start a buy-to-let portfolio, hiring a property management company lets you have a hands-off investment.

Bringing in a property management firm will increase your costs, but it is often necessary if you don’t have the time to handle the responsibilities of managing a real estate portfolio on your own.

These kinds of property management companies are very important if you want to invest in real estate without having to do much. They will take care of all of your landlord duties and be the main point of contact for your renters.

While this will cut into your profits slightly, the time and energy it saves you will more than make up for it, and it will free you up to pursue other sources of income rather than just being a landlord. As an alternative, some landlords use their freed-up time to research the market for their next investment opportunity.

Hands-free investing is the surest way to grow your portfolio and amass a real estate empire without giving up your day job.

Having said this, if you have the time and desire to self-manage, the benefits include gaining a lot of knowledge and experience in the property investing market, as well as getting to know your tenants better and building a rapport with them, which helps with tenant retention.

Think about an exit strategy

Having a plan for when it’s time to cash out is crucial, whether you’re amassing a real estate portfolio or investing in the UK’s real estate market in general.

An exit strategy is a plan for selling an asset in the future, taking into account the results of any investments made.

You’ll want to maximise your rental income and schedule your sales strategically if you’re investing to establish a comfortable retirement nest egg.

Property is a significant physical asset, so selling it won’t happen overnight. You need to be patient if you want to get the most money out of your investment. For example, if there’s a downturn in the property market, it may be best to hold onto it for a while until there’s an uptick so you can fetch a better price.

Investing in real estate is often a long-term commitment; if you run into financial difficulties, you may not be able to liquidate your holdings fast enough to help you out.

By looking at rental market trends and estimated property prices, you can decide when the best time is to sell your investment property.

Think about buying off-plan

Purchasing off-plan property is a viable option worth considering.

To put it simply, “off-plan” refers to newly constructed homes that can be acquired prior to the development starting or during the construction phase.

When it comes to real estate investments in 2023, there are a number of compelling reasons why purchasing an off-plan house is the best option. To summarise:

• Off-the-plan houses are typically provided at steep discounts to attract investors.
• Off-plan houses typically see an appreciation in value once they are finished, thanks to the cheaper pricing.
• With off-plan real estate, buyers may get in early on a project and choose from among the best available units.
• If you decide to buy off the plan, you should research the developer thoroughly to make sure they are trustworthy, and the property is built to your standards. Looking at their history and seeing how previous developments went is one good way to do this.

It’s crucial to be sure the developer is up to par before investing in an off-the-plan property because there are more opportunities for problems during the development and construction phases.

Try to avoid getting a buy-to-let mortgage

If you are thinking of investing in property for the first time and you are on a tight budget, say with just enough to cover the initial deposit, then you are likely restricted to taking out a buy-to-let mortgage.

One of our best pieces of advice is to avoid buy-to-let mortgages if you’re a cash buyer and can afford it, especially if planning for retirement is an important factor for you.

This is due to the fact that buy-to-let mortgages function somewhat differently from standard home loans.

So, what are the main differences?

Buy-to-let mortgages are interest-only and often call for a bigger down payment (about 25%). This essentially means the monthly repayments cover the interest only, and the principal balance of the mortgage is not paid.

At the conclusion of the mortgage’s term, you’ll have to repay the whole balance, either through a new mortgage or the sale of your home(s).

It goes without saying, if you are looking to sell your home in preparation for retirement and make a profit, you won’t want to be required to use the proceeds to pay down any remaining mortgage balance.

If you’re in a position where you have to use mortgages, you can seek mortgage relief, but you might need to set up a limited business to maximise your profits.

In addition, getting a buy-to-let mortgage might be challenging when trying to buy an off-plan house because of the higher level of risk involved.