The five ways to build up your buy to let portfolio

In theory building up a buy to let portfolio is fairly simple. You research properties which fit your criteria, find a tenant and sit back while the rental income flows into your coffers. In reality it is obviously not as easy but there are simple strategies which will protect your portfolio going forward and maximise your income.

Stick to what you know

There is often a temptation to follow the latest trend in the buy to let market and branch out into areas you have no knowledge about. If you have been making good money using your current strategy, why change? There is an argument for diversification, but ensure that you research any new market in depth. There is nothing wrong in following other investors but you need to know why you are following them.

Don’t overstretch your finances

Building your own buy to let portfolio should be seen as a long-term project, one which can deliver significant returns further down the line. By the very nature of the industry you will come across “too good to miss” opportunities and may be tempted to stretch your finances a little. You need to be very careful about overstretching your finances. One missed payment, one rogue tenant or one capital loss on a property could in theory bring your whole portfolio crashing down.

Be fair but firm

If you are a landlord you need to find a balance between fair and firm when dealing with your tenants. Some people may prefer to employ a property management company to look after their portfolio but this will depend on your situation and finances. As a landlord, you need to be fair but firm and ensure that everybody knows how the land lies. Tenants may have short-term cash low issues and sometimes you may need to be a little patient to get paid. On the other hand, a tenant’s financial situation may have changed and the house is no longer affordable. Treat it like the business it is and do not get over emotionally involved.

Never rule out a sale

There are many successful investors who have bought properties and held them for ever and a day. The constant increase in rental income and capital gains creates very safe foundations for the future. That said, you should never rule out the sale of a property when taking into account capital appreciation and rental income. For example, if you bought a property with a rental yield of 5%, and the value of the property doubled, then your rental yield falls to 2.5%. It may be time to bank a profit and reinvest back into properties with a rental yield of nearer 5% (if possible).

Respect debt but use it

It is fair to be wary of too much debt although managed in the correct manner it can be extremely useful. Therefore, if you have significant equity in an array of properties and you are looking to acquire more properties, it may well be sensible to use your equity as collateral. You could re-mortgage one or more of the properties to raise funds for the next one. In effect, that re-mortgage could create two rental income streams as opposed to one. While part of this would be used to cover mortgage repayments, this is a useful means of expanding your portfolio. However, you need to ensure you have significant headroom between your liabilities and your income/assets at all times.

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