Whether you're an experienced investor or you're thinking of getting into property investment, there are "rules" that you can follow that will ensure that you are building the most successful portfolio possible. By following these simple rules, you will have a basis of a successful property portfolio - it will take time to build, but the rewards for investing sensibly can be great.
Here are seven top tips for building a successful property investment portfolio:
1. Consider how much you are paying
Reflect on how much other properties in the area are worth to know if you are getting a good price for the property or paying too much. Is there anything you are able to add to the property to add value to the rent or price of the property in you're planning on selling on?
2. Look for properties with good yields and cash flow
Look into how much the average yield is in the area and what the developer is offering for your potential investment. A successful investment should have a good rental yield that's guaranteed for at least one year. For properties that are single let you should be looking at the developer offering at least 7% gross yield for the best results. If you're planning on selling on quickly, consider how long you are contracted in to keeping the property for; research the property value growth in the area over the last few years to see how this could continue to rise in the near future.
3. Be clear about the length of your investment
Rental yield is one of the most important factors for any buy-to-let property investor. Research the area to find out what the average rental yields are, and how much you can expect to get from your purchase. Most developers will offer rental assurance - a good rental assurance should be for at least one year, if not two. A good guide to work to for what rental yields you can expect to get in 7% gross for single let properties, and more for serviced accommodation or multi-let properties.
4. Is there any potential for capital growth?
How does the number of properties that are currently - or planned to be - in the area compare to the demand? If the demand for accommodation is predicted to rise quicker than the rate that the number of units in the area is increasing, the capital growth in the area will have a greater potential. Investment being plugged into the area by the government or public sector is also a positive sign of good capital growth potential.
5. Carefully consider your exit strategy for each property you buy
An exit strategy is one of the first things that you should consider as an investor before purchasing any units. Having a clear and realistic plan - and even a back-up plan - can stand you in good stead to know when you should leave your investment without losing too much money, or allow you to make the maximum potential profit before selling on.
6. Does the property have potential to add value?
Many developers will have contractual terms put in place that will tell you whether you are able, as the investor, to make alterations and refurbishments for a number of years, or have restrictions on the types of refurbishments you can make. There are a number of things you can do to a property to maximise your value when selling on. For example, adding a fireplace (at a cost of £3,500) could potentially add £7,000 - £10,000 to the overall value of your property. Adding value to your property doesn't just have to be for when you sell - it can also increase the rent you can ask for your units. Think about which options are best for your budget, what your target tenants or buyers want, and your exit strategy.
7. Is the developer offering discounts to bulk buyers, or off-plan investors?
As a general rule, you can expect that properties will be cheaper than earlier in their build to buy them. Buying off-plan opportunities early can ensure that your rental yields are as high as possible. Buying in bulk can also reap discounts from developers, however this depends on the developer and how much you are able to buy in bulk.