Whether you’re a seasoned investor, or brand-new to property, you need to have a plan and strategy when looking to build a portfolio. Before you make any decisions you need to ensure you have thought about all the areas that are important including your main goals and current situation. Assetz have put together a quick guide to help you answer some questions, many of which you may not have considered.
Before you embark on any purchases it's important you undertake thorough research and planning. This will ensure you make informed decisions and the path you choose is the right one for you. You need to fully understand your motivation behind the investment and your current situation is key when planning.
You need to ask yourself questions such as 'How much would I like to be involved in the day-to-day running of the property?' and 'How much can I afford?'. There isn't much point looking at investment opportunities if you don't know how much you have to invest. Once you have answered all these questions you're ready to move to the next step - Setting your goals.
It is important to have your goal clearly defined from the outset of your investment journey. The most compelling reason for investing is to achieve an early and comfortable retirement and to leave a good inheritance for your children. Financial freedom is a key player in our lives and something that we all aspire to. Your goal should be 'smart' but it can change over time, allowing you to adjust your approach and plan accordingly.
Choosing the right strategy is about picking an approach that suits your situation and goals. Don't dive in head first to an opportunity just because it has worked for someone else, you need to ensure the path is right for your goals.
There are several different strategies you can take when it comes to investing in property. Assetz have a suggested strategy, which we follow with our own portfolios, which is built around 'Generators' and 'Accelerators'. More about this strategy can be within this article.
Once you are comfortable with your situation, goals and approach, you need to look at what property you will buy. There are many places you can look including property websites, auctions, estate agents and buy-to-let investment specialists, such as Assetz.
With so many properties available it is important to take into account the actual price, including all taxes and ongoing costs, the return on investment, the potential exit strategy, the risk, the location and the finance. Only if you are satisfied with all the criteria should you look at progressing.
When choosing the right property to suit your individual requirements all aspects need to be considered, but the cost of acquisition, ownership and exit strategy are of prime importance. There are two main exit strategies for investors:
- Sell your buy-to-let property when capital growth is substantial
- Hold your property and live off pure rental profit
The two strategies are very different and every investor has their own preference on which route they will follow. The Assetz approach advises you to hold on to your highest income-generating properties whilst selling the properties with the highest capital and using this to invest in more property.
If you are willing and ready to take on a more hands-on approach with your properties, then you can decide to manage the property yourself. You will need to consider that this could be time-consuming and you could face a higher risk of void periods, since you won't have the resources a letting agent has in the process of finding a tenant. On the other hand, micro-managing your properties will automatically increase your yield as you won't have to pay a fee to a letting agent and the full amount of the rental income will come straight to you.
To aid the construction of a balanced portfolio, we classify buy-to-let property into two categories; Generators and Accelerators.
A generator is a property primarily purchased to generate long-term reliable income or yield. If the rental income is based upon robust tenant demand then it can be highly predictable and can be classed as a true income-producing investment.
An accelerator is a property primarily purchased for capital growth to potentially accelerate a retirement date. As growth cannot be guaranteed, particularly in the short term, these are essentially speculative purchases unless also underpinned by strong rental income.
It is important to remember when planning and building your portfolio that you get a good balance and carefully blend together appropriate income generators and accelerators. This will mean that your properties can perform very strongly in growth years but still produce good investment returns and a safe income level in periods of capital growth stagnation. With prices set back over recent years it is quite possible, at present, to purchase a property which can satisfy both criteria.
The key to reliable income for retirement is to build a core portfolio of hands-off, high-income and relatively inflation-proof rental generators. The accelerators which provide potential capital growth would be intended to be sold in the future in order to provide enough capital to repay early the remaining debt on the generators which are going to be held for long-term income. In this way you are left with a debt-free, income-generating portfolio.
Risk Warning and Disclaimer:
The price of property can go down as well as up. Historic performance should not be taken as a guarantee of future performance. Geared property investment with mortgages can increase risk of losing money as well as increasing the possible gains. Mortgage products referred to in the website can be withdrawn by the lender or have rates or other terms changed without notice and reference to any products does not imply they are certain to be available in the future. Mortgages referred to may also have certain applicant restrictions and are for indicative purposes only although reasonable endeavours have been used to ensure that they are available at the time of publication and are applicable to a significant number of our purchasers. This site is for information purposes only and nothing on this site should be taken as definitive investment advice for your particular situation without you seeking additional guidance directly from ourselves or from other finance and property professionals. Property particulars on this site do not form part of an offer or contract. The developer and Assetz Property Ltd, whilst endeavouring to ensure complete accuracy in these property particulars, cannot accept liability for any errors. Valuations of property or indicated rents achievable are either estimated or derived from valuations and/or comparables and can change and should not be relied upon without your own additional valuation and research, but we have carried out reasonable endeavours to achieve accurate indications for these figures. All descriptions, dimensions, areas, reference to condition and, if necessary, permissions for use and occupation and their details, are given in good faith as provided by the developer and are believed to be correct. However, these are subject to change, especially, but not wholly, relating to any property that is off-plan or not yet complete. Any intending purchaser should not rely on them as statements or representations of fact but must satisfy themselves by inspection or otherwise as to their accuracy. The onus is on each individual investor to undertake their own due diligence, enquiries and inspections. Where shown, net yields are calculated as rental income less expected service charges less expected ground rent as a percentage of the property price. No void periods, optional letting agent costs, repairs or other costs are deducted. Our standard Terms and Conditions of Sale will apply. E. & O. E.