What is an investment property portfolio?

If you want to become financially independent of your full-time job, property investment is an excellent long-term strategy.  Having a single property is a good way of generating a little extra money, but to gain true financial freedom, you’ll need to build a multi-property portfolio.

An investment property portfolio is a collection of properties that are owned for the purpose of generating income. The properties may be rented out, or used as a source of collateral for loans. A well-diversified portfolio will include properties in different locations and of different types, to minimise risk.

The main desire for any portfolio is to create a steady and reliable stream of income that will allow you to replace your current job, giving you more time to do the things you want to do without having to worry about booking holidays, attending meetings, or dealing with the annoying boss!

The goal is to comfortably live off the income generated by properties, and not have to worry about being able to cover the bills of a single property when it’s unoccupied.

Benefits of building a property portfolio

An investment property portfolio is a collection of properties that are owned for the purpose of generating a steady cash flow and to build wealth over time. 

There are many benefits to building a portfolio, including:

  1. Increased income and financial security: When you own multiple properties, you can generate a steady stream of income from rent payments. This can help you to secure your financial future and make it easier to cover expenses like mortgage payments, taxes, and repairs and renovations.
  2. Tax breaks: The government offers a number of tax breaks for property investors, including the ability to deduct mortgage interest payments and other associated costs from your taxable income. Although Section 24 was announced in 2015 and refers to a change in tax law that affects the amount of tax relief landlords receive. The amendment was phased in gradually but came into full force in April 2020.
  3. Improved cash flow: Owning multiple properties can improve your cash flow as the rent collected will generally be greater than the cost of mortgage payments, taxes, repairs, and other expenses associated with owning property. This can help you to build wealth over time by freeing up more money each month to invest or save for the future.
  4. Multiple income streams: If you own a single site, you gain a single income stream. If that property sits empty, you have to cover all costs from your personal savings. By building multiple streams of income you’ve a safety net that allows the collection to cover expenses during a void period.

And, of course, the aim of building a portfolio is to fully replace the income from a day job, allowing you to quit the 9-5 and be your own boss.

Tax Benefits of a property portfolio 

Property investments can offer a range of tax benefits, depending on the type of investment and how it is used. For example, if you purchase a property for rental income, you may be able to claim depreciation on the building and its fixtures and fittings, which can reduce your taxable income.

You should also keep a record of all expenses incurred due to the portfolio.  As long as these charges are only in relation to your rental business, you may deduct the expenses when working out taxable profit.

Common rental property expenses include advertising, cleaning and maintenance, commissions paid to agents, insurance premiums, and legal fees.

You may also be able to claim tax deductions for any interest payments made on the loan used to finance the property purchase.

Negatives of a property portfolio 

Property investment has been around for centuries, with people using various strategies to make a good return on investment. In recent years there has been a raft of TV shows, such as Homes Under the Hammer, that have introduced the idea of dabbling in the real estate market, and it has become an increasingly popular way to earn a passive income and replace one’s current job.

There are many ways to see a return on investment.  Some buy to rent, others purchase development properties and build new homes or flats, and others invest in commercial spaces.

No matter which route you choose, there are a wide range of issues to consider when investing in property. The most important thing is to do your research and understand the risks involved before making any decisions.  Here are some things to consider before making any investment decisions:

You Need Time 

In order to be successful in property investment, you need time. You need to learn about the market, find properties that fit your criteria and negotiate deals.

After your initial investment you’ll need time to renovate and advertise, then time to allow the income of rent money which will be used to pay off any loans or mortgages taken out. It will take time to see a return on investment.

The value of the property may increase, but without investing a lot on improvements you’ll need to wait for many years to allow the value to increase naturally for a significant return when selling.

You Need Money

You require money to make money.  You need money to make the initial investment, to pay for expenses such as legal fees, agent fees and insurance, to renovate and maintain, to advertise, and eventually to sell.

Fortunately, if things go well you’ll gain money from the portfolio which can be reinvested, either in additional properties, in improvements, or just paying off debts as soon as possible.  Reinvesting in improvements to your rental properties can result in higher rental yields and a faster cash return, look after your properties, and they’ll look after you!

You Need Knowledge and Experience

To become successful, you need to gain experience in the property business.  Before attempting to build a rental property portfolio, make sure you’re comfortable managing just a single property and everything that it involves.

You need to learn how to research investment opportunities, how to spot problems that will need to be addressed (and have an idea of the cost to repair), how to renovate, so it’s ready to rent, how to market and sign up tenants, how to maintain, how to deal with ongoing maintenance, how to deal with void situations, how to record financial information and how to submit taxes.

This can be a shock to those new to investment.  Be sure to take your time and seek professional advice rather than guessing.  Invest in your knowledge and education, and you’ll be better equipped to build your property portfolio.

You Need Patience

Property investment isn’t a get quick rich scheme.  You need to think long term, taking a multi-year view to growing your portfolio.  You don’t want to rush into buying a property, be patient and do your research on the area and on the renovation work required.

As you gain tenants and start earning you’ll need to be patient and wait for the income to cover your initial renovation costs, before finally starting to make a profit.

And of course, when you come to exit (i.e. sell) you may need to be patient and wait for a serious buyer to come along and make a sensible offer.

Discipline is a must

Discipline is key to success in any business.  You’ve got to set a budget and stick to it as well as make sure you keep accurate financial records and submit tax returns on time.

In real estate, you need discipline to stick to your plan, you can’t afford to get emotional about your investments.  You need to be able to analyse the market, make decisions based on data, and stick to your strategy.

It’s important to not get emotional about buying a rental property. Remember you aren’t living in it! It needs to be of a good standard to attract the right tenants but you don’t need gold plated taps!

You Need To Be Willing To Take Risks

Risk is part of investing in real estate.  It’s a great way to create passive income, but it does come with risk. You need to be willing to take risks and be comfortable with the possibility of losing money. That doesn’t mean you should invest in risky properties or gamble on the market, but you do need to be aware that there is always some element of risk involved in any investment.

By understanding the risks and taking steps to minimise them, you can reduce your chances of losing money and maximise your potential for profits. Do your research, get expert advice, and don’t invest more than you can afford to lose. These precautions will help you make smart investments while still enjoying the potential rewards real estate has to offer.

Risks include:

  • Property can be expensive to maintain and repair, and if you are not able to manage the property yourself, costs can quickly add up.
  • If you are not able to find tenants for your properties, you may end up having to cover the costs of mortgage payments and other associated expenses yourself.
  • Property investment can be time-consuming, and it is essential to factor this into your decision-making process before expanding your property portfolio.
  • It is possible that you may not see a return on your investment for several years, so it is important to have a long-term plan in place before making an investment.

The above list is by no means exhaustive, but it gives you a good idea of what to look out for when considering property investment.

How to start building your own property portfolio

To begin building your property portfolio, you first need to decide where you want to focus your efforts. Are you looking for something safe and steady, or would you prefer to take more risks and potentially earn higher rates of return?

Understand your Why!

This is the most important thing to do before you get started.  There are many TV shows which may lead you to believe that becoming a property investor and a landlord is the easiest way to make some quick hard cash and get rich quick

I can safely say this is not the case at all.  Yes, you can make some great income and possibly some great capital gains on a property, but it’s not all plain sailing.

Knowing why you want to become a property investor is the starting point.  Try to understand the reason why you are getting involved in property and this will keep you going when times are tough.

Investing in numerous properties, renovating them, and renting them out can be a lucrative venture.

Here are the steps to consider:

  1. Do your research. Learn everything you can about property investment – the different types of properties, the best locations to buy, how to find and assess potential investments, what risks are involved and how to minimise them, etc.
  2. Have a plan. A business plan is essential to show your partners and lenders that you are serious about investing in property.  You need to establish a timeline for your investment portfolio and map out the financial projections showing how you will make money while you’re still on your first purchase. Finally, you’ll need to make sure that your business is structured in a way that meets legal requirements and protects your assets.
  3. Start small. Don’t invest in too many properties at once – start with one or two and gradually add more as you gain experience and confidence.  
  4. Set realistic goals. Don’t expect to become a millionaire overnight – property investment should be viewed as a long-term strategy for building wealth over time.
  5. Create a budget and stick to it. Make sure you have enough money saved to cover the initial costs of buying a property (e.g. stamp duty, legal fees, etc.), as well as ongoing expenses such as repairs, insurance premiums and mortgage repayments.
  6. Build a team. Find a good accountant and solicitor who can help you with all aspects of your investment portfolio – from buying/selling properties to filing tax returns/claiming allowable deductions. Find good trade people you can build a relationship with to help renovate and maintain your portfolio. Have a look at our expert panel if you don’t have your team in place.
  7. Consider your processes. It’s important to have a solid management plan in place so that the properties can be properly managed and maintained.  What happens in an emergency?  When does your insurance need to be renewed, what is the process to follow when a tenant moves out?  Also, make sure to communicate tenant related processes to the tenants. For example, who do they call in an emergency?
  8. Diversify for protection.  Diversification ensures that if one part of your portfolio fails, then another part of your portfolio will pick up the slack. Consider investing in different areas, or a different type of property (e.g. if you have houses, invest in a flat).

Finally, investors should always keep an eye on their financial goals and make sure that their investment property portfolio is aligned with those goals.

Decide on your Strategy

It is so important to set your strategy before you start. If you don’t know where you are going how are you going to get there?  You could get carried away with all the excitement of getting started, and not actually make the right decisions. If you plan your strategy from the outset you will have a clear path. 

Ask yourself a few questions:

  • Are you looking for cash-flow each month?
  • Are you looking for capital gains?
  • Are you going to buy and hold?
  • Are you going to buy and sell?
  • How much income do you want from property investing?

Most people want a combination of capital growth and rental income from a buy-to-let property. As you become more experienced there are many different strategies that you can implement to build your property portfolio.   Choose which one or combination of a few appeal to you the most. 

We’ve all heard about location, location, location when it comes to buying property but what about strategy, strategy, strategy? Property is an excellent way of generating real wealth – but it is a big slow boat and expensive to turn around. Get it right & the numbers are big. The prospects for property profits are excellent. Get it wrong and the numbers are big too!

Financial freedom from a single property?

In conclusion, a property portfolio is a great way to diversify your assets and generate passive income. However, it requires patience and dedication, and there are certain things you must do right to ensure its success.

It’s highly unlikely you will make enough from a single property, if your goal is financial freedom then investing in multiple properties is the way to go.

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.


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