How to Build a Property Portfolio (UK) – 10 Essential Steps

Before building a successful property portfolio, you need to understand what exactly this is as well as the steps and finances typical of the investment process.

In simple terms, a property portfolio is a selection of investment properties owned by a group of people, an individual, or a company.

Building a property portfolio in the UK means purchasing several buy-to-let investment opportunities to generate a significant return on investment – more so than you would with just one property.

By purchasing different properties in a variety of areas, investors can ensure steady returns through a rental income from one property even if another is without a tenant or enduring challenging market conditions.

Those who want to know how to start building a rental property business and turn their buy-to-let efforts into a full-time career will typically need to own a sizable portfolio of properties.

Importantly, when starting a property portfolio, the buy-to-let market is often the best place to begin as the income you make from your first rental property can provide you with the means to invest in another.

This will kickstart your journey to building a property portfolio that is diverse and versatile enough to withstand difficult market circumstances and bring you lucrative, long-term returns.

So, what amount of money does it take to build a property portfolio, and how much can be earned?

Understandably, when considering building a buy-to-let portfolio, you must ensure you’re financially ready to make your first purchase.

This may seem self-explanatory, but many people end up in serious financial difficulty, swamped with repayments after trying to build a property portfolio too quickly and with insufficient funds.

Starting a property portfolio can be expensive, and there are a lot of ongoing costs involved that you need to be aware of.

In the UK, properties are currently valued at an average of around £288,000, according to the latest UK House Price Index. When building a property portfolio, however, there are ways to manage and mitigate costs.

These include investing in off-plan property and more affordable buy-to-let areas, discussed later in this blog.

For examples of buy-to-let property prices in key UK markets, click the link or simply scroll to the bottom of the page.

Keep Track of the Market

Keeping an eye on current market values and future forecasts is essential when considering how to build a property portfolio and deciding when the best time to invest is based on personal financial circumstances.

Following a brief decline in property values this year, Savills predicts prices to rise by an average of 17.9% over the next five years. This means 2024 could present a unique opportunity to make an investment for below-market value before property prices increase significantly.

While building a property portfolio can become more affordable as you begin earning rental incomes from multiple properties, it’s important to realise you could be spending significant funds to start your property portfolio.

Therefore, it’s important to take the time to come up with an affordable and sustainable property strategy when it comes to your investment decisions.

You’ll also need to factor in ongoing costs involved with buy-to-let property purchases.

These may include:

• Stamp duty tax
• Income tax
• Letting agent fees
• Maintenance costs
• Ground rent
• Capital gains tax
• Mortgage payments
• Landlords’ insurance

You can find out more about landlords’ insurance, stamp duty, letting agent fees and other costs involved with UK property investment in our ‘How much money you need to Invest in UK Property’ guide.

Property is also subject to various regulations, which can see new developments or proposals that could affect your budget.

For example, the introduction of new EPC regulations in 2023/24 has seen developers and landlords incorporating efficient, energy-saving technologies into their plans in order to ensure that they don’t incur any fines or lose their ability to earn rental income from their properties.

You can find out more about EPC ratings and how to future-proof your property in this article: ‘What do investors need to know about energy efficiency?’

The third step in determining how to build a property portfolio is knowing where to invest.

Importantly, not all UK property investment areas are the same, with substantial regional variations in price, growth potential, rental demand, and more, making this one of the most essential steps to successfully building a property portfolio.

When building a property portfolio then, you should always research the best investment areas before making a purchase, keeping the following factors in mind:

• Affordability
• Monthly Rent
• Rental Yields and Returns
• House Price & Rental Growth Potential
• Population Demographic & Rental Demand

If an area meets all these criteria, it is likely one of the best places to start building a property portfolio.

In terms of value for money when building a property portfolio, UK markets that investors should seriously consider in 2024 include the Manchester and Liverpool property investment markets of the North West.

According to Savills, both cities are set to see house prices increase by around 11.7% by 2027 – the highest predicted growth in the UK, making them two of the most promising areas to build a property portfolio in terms of capital growth.

They also have some of the highest rental returns in the country, a key point to consider when strengthening, diversifying, and successfully building a property portfolio in the UK.

To learn about the best places to invest in property and where you should build a property portfolio in the UK, we have a complete top 10 guide to help you.

But for now, here are some key UK investment areas to consider:

• Liverpool
• Manchester
• Birmingham
• Newcastle
• Leeds

One of the most important things that property investors can forget to focus on when purchasing buy-to-let property is the target tenant.

It’s easy to get wrapped up in property marketing and the potential earnings from your buy-to-let investment to the extent that an essential factor often gets neglected – who the property will be tenanted by?

Identifying the right tenants and ensuring they’re satisfied with where they are living is crucial to building property portfolios that can bring a steady cash flow through regular rental income and be less susceptible to void periods. This will also help you to avoid stressful and time-consuming disputes with tenants.

Essentially, understanding current tenant needs and what they look for in a rental property is one of the most important things to consider before you start a property portfolio.

Following the COVID pandemic, tenant demand has changed significantly as they now look for different facilities when selecting a property, according to Benham and Reeves.

For example, with more people working from home or in a hybrid schedule, many tenants view fast broadband and outside space as essential features of a rental property.

New builds are also highly popular with younger tenants, so aiming to add new build properties to your portfolio is a good way to ensure long-term tenant demand.

So, when considering how to build a buy-to-let portfolio that attracts and maintains a steady flow of tenants, these important points should be kept in mind, particularly in areas with a high population of young professional renters.

Many people assume when setting out to build a property portfolio they will have to take on a lot more responsibility as a landlord.

A landlord’s job can be hectic, with the pressures of finding tenants, managing properties, and dealing with tenant issues demanding a lot of time and effort.

This is especially true for those already working full-time and looking to use their property portfolio to generate extra income.

Luckily, however, building property portfolio can be done using a fully hands-off investment strategy simply by hiring a property management company.

Enlisting a property management company will add to your expenses, but it is often crucial if you don’t have the time to meet the demands of running a property portfolio.

These companies are a key part of a hands-off property investment strategy as they will deal with all landlord responsibilities and will be the first point of contact for your tenants.

In addition, they are highly experienced at what they do, which can be extremely helpful if you’ve just started to build a property portfolio.

This will eat into your profits a small amount, but it will save you a great deal of hassle. It also allows you to earn more income through other streams than if you were acting as a full-time landlord.

Typical functions of a property management company:

• Selecting Tenants for a Property
• Collecting Rent from Tenants
• Managing Day-to-Day Repairs
• Overseeing Property Maintenance

If then you find yourself wondering how to build a property portfolio while maintaining a full-time job, hands-off investing is certainly the best strategy to adopt.

Whether you want to know how to build a property portfolio with £50k or how to grow a property portfolio from just £20k, one of the best ways to develop a portfolio on a budget is by buying off-plan property.

Simply put, off-plan properties are new-build properties that can be purchased while still under construction and usually come in the form of residential as opposed to commercial property.

There are several strong reasons why buying off-plan property is ideal for investors in 2024.

They are:

1. As an incentive to invest, off-plan properties are usually offered significantly below market value.
2. Off-plan properties allow investors to get in early and cherry-pick the best units in a development.
3. Thanks to the lower prices, off-plan properties usually grow in value upon completion and with UK property prices set to increase over the next five years, 2024 is an optimum time to invest.
4. Off-plan property investment is one of the best ways to enter the market If you have a starting budget of 100k, 50k or even 20k, it gives you time to make staggered payments while construction is ongoing. Meanwhile, your investment is likely to have increased in value by the time construction is complete.

Of course, if you do choose to buy off the plan, you need to carry out ample due diligence to ensure the developer is reliable and the property will be of high quality.

Off-plan properties can be riskier due to the fact that delays are often unavoidable in the construction industry, so ensuring the developer is of a high standard and has a portfolio of completed developments is important.

Many people interested in entering this lucrative market wonder how to build a property portfolio from nothing. Well, given the growth potential and the time it gives you to complete payments, investing off-plan is one of the most cost-effective ways to start a property portfolio.

To learn more about buying an off-plan property, be sure to check out our ultimate off-plan property guide.