One of the main problems with those new to the property investment market can be a lack of patience and forward planning. Many often ask, how long does it take to build up a property portfolio – the answer to which is, how long is a piece of string? There are obviously ways and means of building up a property portfolio with a varying degree of risk.
Buy to let portfolio
In theory the less risky and more long-term approach to property investment is to acquire buy to let real estate, install tenants and use their income to pay off mortgage finance. While it is not quite as simple as that because there will be additional costs associated with managing properties, repairs, etc in theory the structure is fairly simple. After your initial buy to let property investment has been running for a few years you will in theory have built up equity in this property as you pay down your finance.
If, as many landlords do on a regular basis, you are able to push through even relatively small rental increases on an annual basis this will in theory reduce the repayment term for your mortgage. Alternatively you can maintain the same monthly mortgage payments and use any additional capital, together with perhaps a second charge mortgage on the equity in a property, to acquire your next buy to let investment. Once you have multiple rental income streams and you are able to push through rental increases this will give you further financial firepower. There is also the potential to crystallise capital gains in the longer term which can be used to fund perhaps better value investments further down the line?
If you read about those who flip property investments it all sounds very adventurous, very exciting and very easy. Even though there are many properties out there which require tender loving care it is not always easy to obtain them at competitive prices. Those who are successful in the world of flipping properties are able to acquire assets below their perceived market value, redevelop them and sell on for significant gain. Even though many of these investors will have funds available there are some who will use short-term finance such as bridging loans to acquire property, redevelop it, flip it very quickly and pay off the short term finance, leaving the rest as profit.
Those looking of to create significant profits going forward can either use these additional funds to flip bigger and more expensive properties, where there may be more profit margin, or introduce more traditional long-term property investments to their portfolio. This option is a lot more risky than a simple long-term buy to let investment strategy but if your timing is correct and you obtain the best buying and selling prices you can create a significant gain “out of nothing”.
Flipping investment properties and building up a long-term buy to let property portfolio are in theory the two ends of the property investment spectrum when considering the potential risk. Investment in property should always be seen as a long-term strategy although some people certainly have a knack for acquiring short-term investments and creating significant profits. In real life the majority of property investors will probably settle for an investment strategy somewhere between these very opposite ends of the spectrum.