In order to really succeed in the buy to let property market, you need to have a strong portfolio. We’ve all heard the phrase ‘do not put your eggs in one basket’, and that certainly applies in this case. To have a strong yet stable property portfolio, it is important to diversify your portfolio while choosing properties that have a high return on investment. Some people believe that high risks lead to high rewards, but that isn’t necessarily always the case. We spoke to the experts, and here are 7 secrets that you need to know to build a stable buy to let property portfolio.
1 Balance your rental and resale investments
While some investors focus on buying only rental properties, good investors know that it is a good mix of properties that will ensure a strong portfolio. Creating a good portfolio is not just about buying and selling a property; it is about finding the right balance. As an investor, you need to know when you should sell an investment, when you should hold on to a property and when you should use your profits to spruce up a rental property. Essentially, you need to have a fair idea of the local market, you should have a good understanding of the current market conditions, and you must keep the current market trends in mind, including the demand and supply.
2 Invest in both residential and commercial properties
Usually, you will either find investors who invest in commercial properties or in residential properties. But, in order to really stabilise your property portfolio, you should be investing in residential and commercial properties. You should always be on the lookout for investment opportunities in the residential market as well as the commercial market. For instance, during the Covid-19 pandemic, residential rentals in the city were hit very badly, but commercial rentals continued to make money. Similarly, the demand for residential buy to let properties in the suburbs and outskirts increased drastically, as people were looking to move out of the city. Thus, it is important to have a good mix of commercial and residential properties to balance out your property portfolio.
3 Always do your research
Before investing in any property, do your research and find out about the best buy to let areas. For instance, Bristol, Oxford, Manchester, Cambridge and Leeds are among some of the best areas to invest in buy to let property in the UK in 2022. Also, once you have chosen the right area to make an investment, it is equally important to choose the right type of property to invest in. If you are thinking about investing in an area with a strong student population, then buying an apartment that you can give out on rent might be a better idea than buying a house. Understand the tenant demand of the area and invest accordingly.
4 Have a plan, always
Investing in a buy to let property is no easy feat, and it costs a whole lot of money. So, before you start diversifying your portfolio and parking your money in rental properties, you need to have a plan. Your plan needs to have three parts – your short term plans, your midterm plans and your long term plans. Always plan in advance; you should have a 2-year plan, which includes the number of properties you want to buy, the number of properties you want to sell, the amount of rental income you want to earn and so on. After 2 years, you can revise your plans to decide which properties are worth selling and which ones are worth holding on to.
5 Start understanding the demographics
To really succeed in the rental market and to have a stable buy to let property portfolio, you need to have a strong understanding of the demographics. Once you know the local demographics, you can plan your future investments better, for instance, if you are thinking about investing in Manchester or Oxford, both of which are known for their strong student population, then you might want to invest in a studio apartment or a two-bedroom apartment, as the demand for such properties is always high. If you’re thinking about investing in areas such as Wallington, Belfast or Reading, then you should think about investing in homes, as these areas are well-known school districts that will likely attract families.
6 Always have a good exit strategy
While most investors do not want to believe that they need an exit strategy, the harsh reality is that every property investor must have a good exit strategy in case of emergencies. A good investor will know when to hold on to a property and when to sell a property. You might have to lease out certain properties on your portfolio for the long-term, while there may be some properties that you could sell within months and still earn a hefty profit. It is important to understand the property market and study the market conditions before buying or selling a property, especially if there is a dynamic economic shift.
7 Time it right
A smart investor will always choose the right time to invest. There are quite a few factors that will impact the property market, such as the rate of inflation, the rate of interest, the financial condition of the property market, the financial condition of the economy, the imbalance between demand and supply, buyer demand and preferences, purchasing power and so on. For instance, when the rate of inflation rises, the price of almost everything rises, including the price of property. So, a period of inflation might not be the best time to invest in property, but it would be a good time to sell property while making a decent profit. Similarly, if the prices of property are falling and there is buyer hesitation, it might be a good time to invest in property before the prices start to rise again.
Essentially, the key to building a strong buy to let property portfolio is to understand the market conditions, do your due research, find the right balance between your investments, diversify your portfolio and time your investments correctly.