5 things you need to know when you expand your property portfolio
The ultimate goal of many landlords is to one day own a raft of properties. Just like when we play Monopoly, we’re all aiming to capture all the very best properties and own each and every street!
However, investing in multiple properties does come with some drawbacks and things landlords must be aware of. It isn’t as simple as being able to ride on the success of the first property, instead there are burgeoning costs and responsibilities that come with expanding a property portfolio.
Here’s the five most important things all landlords should consider before they make the decision to expand their portfolio.
1. You Must Decide How to Manage your Portfolio
Before landlords embark any further on the purchase of another property, this is the very first thing they should stop and consider.
Many landlords who only own one or two properties self-manage. They prefer to pay attention to the types of tenants they allow to let their properties, and can gain a better understanding of the tenants lifestyles. This helps landlords estimate whether the tenant will upkeep the property to the correct standards.
However as a landlords property portfolio grows, it may not be possible to pay quite as close attention as before. Landlords who have a plethora of properties may not have the time to hold tenant evaluations, or make other crucial assessments that they could before.
Therefore landlords must decide how to manage their expanding portfolio. Will they themselves do it, or instead should they consider external help like a property management company?
External help could give landlords the opportunity to focus on the most important things that occur, instead of having to deal with maintenance, repairs and any tenant problems.
2. You Must Analyse the Market
Before signing anything, landlords must spend time watching and analysing the property market. The property market constantly changes, and in the face of world events such as those of the Covid-19 pandemic of 2020, the market can become unpredictable, leading to making the wrong choices and facing the consequences.
In fact, property strategists from Reuters are already estimating that the United Kingdom property market may have taken a 5% hit because of the events of 2020.
Landlords must therefore evaluate the position of the housing market in order to best determine how to expand their portfolios in a sustainable and safe way.
One example of this could be the changing preferences of buyers in the backdrop of the pandemic. Recent trends suggest that more people are looking to move out of their cities and into countryside abodes, and that homeowners are now actively searching for garden space, as well as potential home office space as more companies adapt to working from home.
Evaluating what tenants are currently seeking could lead to a landlord’s rental income increasing, or drastically taking a hit if they make the wrong move.
3. You Must Consider Your Finances
Every landlord remembers how it felt when they made the first financial investment on their very first property. But just because they are now two or three properties down the line does not mean that initial feeling should fade: Instead, each and every financial decision landlords make should be treated with the same analysis and trepidation.
Being realistic about their financial position is crucial, otherwise the financial ramifications are potentially severe.
Questions that landlords should consider asking themselves are:
- What is the forecast for their expenses across the next five to ten years?
- Would there be any major lifestyle changes that could impact their finances?
- Would they be borrowing money to invest in the property, and would there be risks involved in leveraging this money from a bank, financial institution or crowdfunder?
- What is their time frame of investment? For example, landlords who plan to invest in order to retire will need to look for something with a steady and sustainable cash flow, rather than a property that would have its peak growth in the next ten or so years.
4. You Must Set a Budget
Once they have found the answers to those financial questions listed above, landlords should have a better idea of their budget.
Landlords must be aware that the same costs that they incurred when becoming a first time investor and purchasing and preparing their first property for rental, are likely to be repeated across every new property that they purchase.
In addition the amounts can fluctuate in accordance with government regulations and potential external circumstances, like those of the 2020 pandemic.
Therefore it is advisable that landlords consider arranging a budget that acts as a security fund for each of their investment properties. This helps them have something to fall back on to cover unexpected maintenance or repairs, instead of having to dig into savings or borrow more.
5. You Must Effectively Market your Portfolio
Finally, landlords must consider how to market all of the properties within their portfolio. Having one property is easy as landlords can dedicate as much time as necessary to preparing it for marketing.
However adding more properties means the landlord’s time could be stretched, so it is advisable that landlords consider how they will get the word out about their properties.
Options could include online letting agents offer low-fee services, high street letting agents who will manage the full scale of the advertising as well as viewings, but could incur a higher cost, or digital marketing agencies that could advertise the properties using cost-effective online advertising methods.
Landlords must carefully consider their options when expanding their property portfolio.
Whilst the experience is exciting and many will be working towards achieving their goals, they must ensure they are making the right decision in order to reach their goals safely and without putting themselves or potential tenants at risk.