What You Need To Know When Building A Property Portfolio
Any investor looking to make a profit will know that property has the potential for lucrative returns. If mistakes are avoided, and the investment is managed correctly, single property investment can sustainably build into a portfolio that promises regular returns, especially if you are flipping properties. Flipping property is when you buy a property and then through renovation, or waiting until the property market prices increase, you sell the property on for a healthy profit. But as with any investment, knowledge is vital. If you are keen to invest your money into buy to sell houses, here are a few things to consider before diving in.
Diversity Is Key
The more diverse you can make your portfolio, the more you spread the risk. The property market can be unpredictable and fast-moving. Changes to the economy, laws or taxes may have a national impact, both positively or negatively and all property will be subject to those fluctuations. However, locally, there can be small property bubbles as well. These can come through new businesses moving into a local area. For instance, if a university is built or significantly expands its campus, then there will likely be an increase in demand for small affordable multi-bedroom apartments.
Similarly, an area can see a decline in its property demand. Currently, there is speculation that with more companies supporting online and flexible working, there will be a move away from the cities into surrounding suburbs and countryside. To minimize risk, diversifying your portfolio will protect you from these local fluctuations. Diversity in property comes through the types of property you buy and the geographic location. Both are useful. If you have a lot of student accommodation in one area, consider purchasing a family home as well. If you are solely focussed in one city centre, see if you can move your property to more locations. Do not become a one-trick pony as this will mean if the prices crash in one area, all of your properties will be affected.
Do Your Research
Research cannot be overvalued. The more you know about the poverty you are investing in, the less likely you are to be caught out by any nasty shocks or unexpected renovation costs. Using experts like East Anglia’s leading land surveyor is an excellent idea if you are looking to purchase several properties in one location. The insight given to you from an extensive survey of any area you are hoping to invest in will be priceless. It will show, for instance, many things that might not be quickly inspected by the eye. For extensive renovations and architectural restoration, this is essential information. Factor, the cost of research into your investment planning and you, will be rewarded with a clearer picture of your property and work that may need to be carried out, to maximize profit.
Don’t Let Questions Go Unanswered.
If you are buying to sell, then always remember first and foremost, this is a business venture. Therefore, while remaining polite, you should still be firm and ensure that you get all of your critical questions answered by the seller or their estate agent. If they are avoiding a question, do not offer until this question is answered. You will regret not having pushed for an answer if this turns out to be a problem further down the road. Key to this is also running any potential investments past a few pairs of eyes. Experts like solicitors will be able to protect you from legal trouble, while trusted friends can give you an honest assessment of the property and whether it is a good match for your portfolio and renovation skill set.
As Your Portfolio Expands, Your Team Should Expand
While the first few properties may be a labour of love, when you roll up your sleeves and put your DIY skills to work, do not expect this to continue, if you wish to have an extensive portfolio. If you expand your number of properties without bringing in extra support, you will overstretch yourself and the renovation times will become lengthy. However, bringing in contractors will come with a cost, so factor this in as you expand. Alongside this, the property portfolio should begin to be treated more like a business than just a personal hobby. You may need to hire an accountant to manage finances and ensure that your property portfolio is recorded accurately with your local tax authorities. Flawed accountancy could become very tricky to unpick if you realize later down the line that your books have not been accurately recorded. Remember that these running costs need to be factored into any profits you will make across your entire portfolio.
Remember The Holding Costs
On the topic of running costs, flipping a property is all about timing. Remember from the time a property is bought until the moment it is sold. It costs you money. Whether that is in tax, running costs like ongoing maintenance or even supplying the house with electricity and running water. These are your holding costs. This is where time management on renovation is essential. You may undertake a spectacular transformation, but if it has taken you years, then your profit is minimized because you have had to pay to keep the property on your books. Therefore you have to weigh up the time any renovation will take and the costs associated against the potential profit in its resale value. It might mean that with some properties you make less extensive renovations, to ensure that the holding costs do not outweigh the profit margin. Holding costs can easily be forgotten in those first few properties when you want to get everything just right. But always keep these figures in your head when discussing timelines with any contractors.
Use Trusted Contractors
It may be tempting when you are continually looking at a bottom line to go for the cheapest estimate bid. But beware, this can cost more in the long run. There may be a reason why a contractor gives a high price tag, and that is because they value the work they are undertaking and want to maintain that high standard. Always get multiple quotes and don’t be afraid to ask contractors for references from previous clients. Build up trust and repeat business. You may be able to haggle on price later down the line but remember that a valued and a trusted contractor is always going to be pricier than competitors who cut corners and do substandard work.