How to build a property portfolio
If you already have one property you’re renting out, you may be looking to invest in more. But what’s the best way to expand? Would particular types of property be better than others?
This guide helps landlords take the next step in building and expanding a successful rental portfolio, from the benefits of certain properties, to coping with challenges in the market.
Changes within the rental market
The effect of ever increasing house prices and concerns about the cost of living means that more and more people are becoming long term renters. Meeting this huge demand for rental properties will be both a challenge and an opportunity for private landlords. If you’re planning to expand your portfolio of rental properties to cater for this demand, how do you consider which property to invest in?
What kind of buy-to-let properties should you invest in?
Family homes
Family homes will become a major part of the rental market in the next few years, as people in their 20s start families. As this ‘millennial’ generation (people born between 1980 and 1996) includes a higher percentage of renters than ever before, landlords need to focus on investing in 2, 3 and 4 bed family homes.
The benefit of investing in quality family homes in popular areas is that they are likely to be rented quickly, and to tenants who will be looking to stay in their home for longer. Families who have selected a property because of its proximity to their children’s school are likely to want to stay throughout the duration of their children’s education. They are also more likely to treat your property with care and respect.
With supply sometimes limited, once a tenant has found and secured their perfect home, they’ll have little desire to move regularly. As a generation that has spent much of their adult life renting, they’ll be keen to protect both their deposit, and their credit record, so they will take care of the property.
A carefully selected investment into a family home is likely to enjoy positive property price growth over the longer term. Therefore, when you are in a position where you would like to sell, then you’re likely to have an asset that has been well cared for and has grown in value.
Flats for professionals
Apartments come in many shapes and sizes, from studio flats to maisonettes to luxury loft apartments. Flats are often a popular choice as investments for landlords, because they are cheaper to buy than houses and in urban areas represent a significant proportion of the housing stock. New build apartments are always in high demand from young professionals, whose lifestyles may mean they prefer living in a flat to a house, and want new appliances that do not require much maintenance. Location is important for this type of tenant, so landlords should prioritise flats that are near to transport hubs or close to town and city centres.
However, many apartments are leasehold properties, so landlords must be aware of the obligations and responsibilities that come with these type of properties. Some leases do not actually permit subletting, so check the lease agreement before you buy. Plus, there may be additional costs for the landlord to bear, such as sinking fund contributions, as well as ground rent and management fees.
Student properties
Many cities across the UK have a growing student population, who all need somewhere to live. Although landlords who choose to specialise in shared student accommodation must adhere to specific licensing requirements, students can prove to be very good tenants. In most cases, students secure their accommodation well in advance of the start of the new academic year, which reduces the likelihood of void periods. Also, student rents are often guaranteed by parents and this can lessen the chances of arrears.
Ideally, landlords should look for properties located between the university or college and the town or city centre, for maximum appeal to students.
Read our guide for lots of useful information about renting to students.
New build homes
New build properties are popular with both tenants and landlords. Tenants like them because there is an attraction about being the first people to live in a home, and the fact that they often come complete with brand new fitted kitchens and bathrooms, triple glazed windows and fitted flooring. Many key appliances such as the boiler and heating systems are guaranteed.
Landlords like new builds because they are chain-free, offering the opportunity of quick completions. The strong demand from tenants mean higher rents can be charged, although these should remain competitive.
Other benefits for landlords include the lack of maintenance costs compared to older properties, and that they exceed the minimum Energy Efficiency Standards, so new costly improvements are needed.
The benefits of investing in a student property
Many cities across the UK have a growing student population, many of whom need somewhere to live. Although, landlords who choose to specialise in shared student accommodation must adhere to specific licensing requirements, students can prove to be very good tenants. In most cases, students secure their accommodation well in advance of the new year academic starting, which reduces the likelihood of void periods. Also, student rents are often guaranteed by parents and this can lessen the chances of arrears.
Indeed, the appeal of the UK’s excellent quality Higher Education to overseas students also ensures there’s a demand for high-end homes close to universities.
The National Landlords Association has plenty of advice for renting student properties and other important rules and regulations.
Houses of Multiple Occupation (HMOs)
Houses of Multiple Occupation (HMO) are defined as being properties where three or more people live, in more than one household, but who share communal facilities. They are usually older, larger properties, and often house students and single young professionals, but increasingly a wider range of tenants are choosing to live in HMOs, because of their relative affordability and the rising cost of living.
Living in HMOs can be attractive to tenants seeking a degree of independent living, without having to pay every bill (the landlord pays the council tax for an HMO, and sometimes offer all-inclusive rents). However, because an HMO maximises the space in a property, they often produce impressive yields, sometimes as high as 10%.
Some of the challenges for landlords with HMOs include their high turnover of tenants, the costs involved and the greater amount of administration, management and maintenance they require. For example, there are licensing costs and obligations, as HMOs have to be licensed by the local council, requiring fees and inspections. There are strict guidelines on health and safety standards, room sizes and deposit protection schemes.
Let haart help you build your buy-to-let portfolio
If you’re looking to invest in your next buy to let property, get in touch with our friendly team today. They are always on hand to give help and advice to landlords, and have a wealth of local knowledge.