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Portfolio potential - are you thinking of expanding your property portfolio?

26th March 2012

Are you thinking of expanding your property portfolio?
The experts at Belvoir Lettings answer your top five questions...

Q1. Is now the right time to extend your property portfolio?

“Absolutely!,” says proprietor of Belvoir Lichfield and Tamworth Angie Allgood. “In the current market you will get better returns than most other investments – property prices are at an all-time low and rents are at an all-time high.”

Proprietor of Belvoir Swansea Ben Davies adds, “Yes, it’s a good time to extend a portfolio due to the slump in the housing market. It’s a buyers’ market out there and there are some fantastic bargains to be had for investors looking to extend their current portfolios. This is helped by the increasing demand for rental property in the private sector.”

Mike Campbell of Belvoir Falkirk agrees but warns that the main priority for a buy-to-let investor is still to invest in the right property. “Although now is a good time to extend a property portfolio because gross rental yields are healthy, care needs to be taken,” he says. “Despite there being relatively fewer competing buyers, there are also relatively fewer properties available on the market. It is still very much about finding the right property at the right price in the right area.”

Q2. How can investors fund extending their portfolio?

“Research what buy-to-let mortgages are out there – they seem to be coming more readily available again,” says proprietor of Belvoir Cheadle, Darragh Lee. “If the property is a financially viable prospect, you’ve done your research, plus have got a professional opinion on rental values, you have a good chance of getting a buy-to-let mortgage when you present this to a lender.

“Also, there may be a possibility of releasing money from other properties you have, either other rental properties or your own property. If there is equity available investors can often re-finance in order to purchase additional properties.”

Mike Campbell of Belvoir Falkirk agrees but says it’s important to check valuations on the property you’re hoping to re-finance before starting the buying process on a rental property – in the current climate, some investors are finding that the valuations have gone down rather than up.

“The number of buy-to-let mortgage products that are available seem to be on the rise,” he says. “However, times have changed and the values of your already-owned properties may have adjusted down – you need to check how much ‘wiggle room’ you have when it comes to refinancing prior to offering on that additional property.”

Q3. How can investors find the right property?

“Finding the right property is extremely important and any Belvoir office can help with this,” says Angie Allgood. “Belvoir can give specialist advice on the type of property that would let promptly – and hopefully trouble-free. They can also advise on what, if any, work would be required to achieve the best possible rental income. The right property would depend entirely on area, so it is important for an investor to get the right advice.”

Ben Davies agrees. “I would recommend investors speak with a lettings specialist, such as ourselves,” he says. “We will be able to provide free independent advice on properties, areas, demand and, most importantly, rental yields.”

Mike Campbell adds, “Don’t make your first question to Belvoir, ‘what are your fees?’ make it, ‘will this let and would you recommend it for buy-to-let purposes?’. The old adage about the worst property in the best area still rings true rather than the best, and maybe cheaper, property in a less attractive area.”

Q4. What are the pros of extending a portfolio?

“As a portfolio grows the risk is spread thinner, particularly the negative impact of a void property on cash-flow,” says Mike Campbell of Belvoir Falkirk. “It is also easier to compare and contrast what works and what doesn’t, leading you to perhaps selective disposal and reinvestment.”

Of course, the larger your property portfolio the higher your potential long-term profit too. Darragh Lee explains...

“If you’re comfortable putting your money into property then the more that you have the better,” says Darragh. “If you hold on to a property long enough, maintain it well and have it looked after and managed properly by an experienced agent you should see some capital growth. Despite the economy being cyclical (periods of recession etc), property will rise in value if you keep it long enough.

“But I’d also say if investors are buying multiple properties, or buying with a business partner, they should get proper financial advice on how to structure the purchases and exits – don’t just build up your portfolio without some sort of exit strategy.”

Q5. What are the main challenges?

“Long-term planning and the creation of an exit strategy are the biggest challenges to most landlords,” continues Darragh. “Investors need to plan ahead regarding Capital Gains Tax and Inheritance Tax so they can exit in the most tax efficient way possible. If you don’t have an exit strategy and you’re only thinking about the here and now and the collection of the monthly rent you could well get a shock in the future when you do come to dispose of the property. Get advice from a professional early on – Belvoir has a link with financial and wealth management company, St James’s Place, and they’re very good at structuring long-term plans for investors.”

Mike Campbell agrees that long-term planning is one of the main challenges and advises that investors concentrate on the prospect of long-term capital growth rather than the reality of short-term changes in the market...

“Arguably one of the main challenges is to keep your focus on the medium to long-term, not short-term, fluctuations as the housing market continues to re-adjust to a new equilibrium,” he concludes.

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