Published: October 7, 2021

How to Create a Property Investment Portfolio

Written by Amber Furr
property business plan
Overview

With the right strategy, building a property investment portfolio can enable people to achieve financial freedom. But where is the best place to start? Read our short guide on the steps to take and the factors to consider when building a property investment portfolio.

Since 2004, Select Property Group has been one of the UK’s leading property developers and investment specialists, with over 13,700 UK and international investment properties sold to date, totalling a value of GBP 2 billion.

What is a property investment portfolio?

Rather than just one buy-to-let investment, a property portfolio is an individual’s collection of property investments. The portfolios generating the strongest returns typically have a diverse range of assets across different property types, sectors and locations, most commonly including Build-to-Rent (BTR) properties and Purpose-Built Student Accommodation (PBSA). Seasoned property investors with a strong diverse portfolio can enjoy healthy returns in the form of high rental yields and longer-term capital growth.

But how many properties are considered to make up a portfolio? If you have four or more properties, you’re classed as a portfolio landlord and will require a different mortgage type. Although one property investment is a great step and a stream of reliable income, it is unlikely that you’ll achieve financial freedom with just one property.

Whatever financial freedom means to you; diversity is a key attribute to any successful investment portfolio. For example, if you purchase four properties in the same area and are disappointed with the capital growth, it is unlikely that you’ll have the equity to diversify your portfolio. Whereas if you purchased four properties in different areas (or perhaps two in each area), the risk of stagnant growth is mitigated and spread across two locations. The same goes for investing in different property sectors, such as residential, student and commercial.

Property Investment Portfolio Benefits

As previously mentioned, diversity across different locations and property types reduces your investment risk as investors aren’t relying on the growth or projections of one property type. But do different sectors achieve different objectives? Read our article on Student vs. Residential property to find out more.

Manchester rents soar as supply reaches a new low.

4 benefits of investing in different property sectors:

A healthy balance of regular cash flow and long-term growth

Typically, student property generates higher yields as property prices are cheaper, whereas residential property is generally more expensive but tends to perform better in terms of capital growth. By having properties across both sectors, investors can expect to enjoy a healthy balance of both.

Relying on more than one source of rental income

By investing in student and residential property, you’re not relying on one source of income if a tenant misses a payment. When it comes to students, despite outdated beliefs that students are not an ideal tenant group due to their ‘reckless’ reputation, investors can find comfort in the shared liability with guarantors, mitigating the risk of missed payments.

Different payment options

Although student property may be preferable to some property investors due to lower capital entry and the rental guarantee period (usually three years), it’s not possible to get a mortgage on student property, which may be a drawback for some investors. Considering both student and residential property gives investors financial flexibility when deciding how to invest.

More freedom when it comes to re-sale

When it comes to exit strategy, generally it is easier to re-sell residential property, as the buyer could be purchasing for owner occupier or investment purposes, whereas student property can only be re-sold for investment. By having both in your portfolio, you can make the most lucrative decisions when it comes to planning your exit strategy.

How to Build a Property Investment Portfolio

Although it may sound obvious, start by procuring one property. Research prime investment locations with strong growth forecasts, speak with a reputable property consultant to establish the best sector and property type for your objectives, and see how your first investment performs.

Regularly reading or listening to market podcasts is a good idea to keep up to date with the property market. At Select Property Group, our Property Insights Podcast features different guests from all over the world, aiming to educate first-time and seasoned property investors on the market and help them make the best investments based on their objectives.

Before building a property portfolio, it is important that you have a clear understanding of your long-term investment goals. The days of buying and flipping property for short-term gains are gone, and property should be considered a mid to long-term investment.

The property market and the UK economy as a whole are performing exceptionally well as we recover from the economic impact of Covid-19. In fact, the recent growth projections from the International Monetary Fund (IMF) show good signs that the UK economy is bouncing back even faster than predicted, with the joint highest growth rate in the G7.

Adam Price, CEO at Select Property Group

Here are some key things to consider:

What is more important to you – capital growth or rental returns?

If the main objective of your investment is to gain long-term capital growth, finding a property with strong growth potential should be your first move. If your investment is more about obtaining consistent monthly payments, looking into student property which typically has higher yields and lower capital entry is a good idea. If both are of equal importance, a balanced portfolio generates the most successful rental returns.

Where do you want to invest?

When it comes to capital growth and rental demand, location is the most important factor. In recent years, we are seeing a widescale trend of more investors choosing to invest outside of London due to its affordability ceiling. The key regional cities gaining interest for their strong development potential and high growth forecasts are Manchester, Birmingham and Leeds. Read more about this in our blog, Why Are Investors Turning to Regional Cities Outside of London?

Do you want to live in the property yourself in the future?

If you are considering a property for a mix of owner-occupier and investment purposes, factors such as location, apartment type, view and surrounding area will be more important to you when purchasing a property

Are you looking for a hands-on or hands-off investment?

This is a key consideration when making any property investment. If you are an investor who cannot or simply doesn’t want to be involved in the day-to-day management, tenancy and maintenance of their property, it is a good idea to opt for a fully-managed property or one with a recommended rental management partner, offering an end-to-end hands-off, hassle-free service.

UK real estate

Building a property investment portfolio with Select Property Group

At Select Property Group, all investments start with a conversation with one of our property consultants to gain an understanding of your objectives, property preferences and budget. We have a range of lucrative investment opportunities across different sectors, locations and brands, to meet the objectives of our global investors.

Since 2004, Select Property Group has sold over GBP 2 billion worth of global property, successfully supporting property investors all over the world to make the best property investments to meet their financial goals. We help our global investors build successful property portfolios by maintaining strong relationships, guiding them on the best opportunities, providing the latest market insights and exclusive client discounts on future properties.

We are proud to offer a bespoke service through our dedicated Investor Services and Investor Relations teams, as well as an in-house brokerage to manage exit strategies to provide a hands-off, hassle-free investment experience from start to finish.

To find out more about property investment with Select Property Group, contact us.

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