The Development of an Investment Property Portfolio.

Don't believe some of the adverts! You know the ones I mean. "Build a multi million pound portfolio in next to no time even though you have no money".

It is my experience,and successful investors will also tell you that it is sometimes hard work (throw a bit of frustration in too) but it is possible to develop a healthy portfolio in a reasonable period of time.

What are the basic and instrumental components that result in a successful return from investment property?

The first thing to remember is that profit in property comes primarily from buying at the right price. This is where the 1 Stop Property Shop can really help. We have excellent negotiating skills and experience. Our association with suppliers and agents, existing investors perhaps selling, and knowledge of the area ensures you buy at the right price. We constantly monitor the recognised rental areas for available investment property and through our internet profile, our marketing policies and expansive database, we are offered prime investment property on a regular basis.

The next priority is to ensure you have a good managing agent. It is not always the best policy to select a "cheap" lettings agent. A good property management company will ensure you maximise your potential. We recommend only a handful that are tried and tested. When you buy a property from 1 Stop, you will be introduced to a recommended management company who will take care of your property. The most obvious priority is for them to have the right tenant in your property (if it is vacant possession), paying a good rent. The lettings agent will supply you with copies of keys and the 6 months AST (Assured Shorthold Tenancy) agreement between you and your tenant.

Property investors have two choices when building an investment property portfolio. Pay cash for property or use finance (buy to let mortgages) There are benefits to both choices.

Example 1: Cash Purchase

Using either your own Solicitor or one local to the property (which is probably more beneficial) you agree to purchase an investment property. Criteria for purchase: make sure the property price (including any refurbishment costs if needed) and the potential rental income are balanced to provide a satisfactory yield. Not only does this return exceed by far the standard methods of investment, you can also expect considerable capital growth or increase in the investment property value. Nationally, property values have increased by an average of 8.5% per annum for many years.

Because investment property bought from us is normally purchased with a degree of equity, you then have the opportunity to use the capital value to purchase further properties. This applies whether you buy one property or a multi property portfolio. Here is an example:-

Cash Purchase

Initial investment property (2 up 2 down terrace type)bought for cash £48000, market value £55000.
We then need to mortgage it to release your initial cash .
The lender will typically finance at 80% (if you are fortunate, 85%)of £55000 the full market value. Therefore you can obtain up to £46750 to buy again.
You then buy another property, with the addition of a deposit to the borrowed funds to meet the asking price of the next property.
There is no way to avoid paying a deposit for the next property, unless of course you purchase a cheaper property that has a value of around the £46750 advanced by the lender.

This procedure can be repeated time and time again, and the advantage of initially using cash is that it is quick, and subsequent purchases can be made by borrowing on the full market value of the property. This is in contrast to the mortgage route, where lenders will normally only fund up to 85% of the purchase price, not the market value. Buying with cash can also have other financial benefits. Cash buying is very attractive to sellers and can help in getting a better price. Sellers will often reduce the asking price for a quick sale, and exclude other interested parties who may be financing.

Financing the Investment Property

Initial investment property bought for £48000, market value £55000
Lender approves an investment property loan (maximum) £48000 x 85% =)£40800
You have to pay a deposit of £7200 to take available funds up to £48k.

Of course this method enables multi-property purchase with less capital.
Once you have built a sizeable portfolio and see capital gain, you can also refinance the properties and extract the equity to expand your portfolio with the cash, or use the equity as deposits on further investment property