How to Build Your Own Property Rental Portfolio

How to Build Your Own Property Rental Portfolio

Based on our own experience:

1. Start as early as possible, to give yourself the most time to grow your property portfolio before you retire.

2. At least to start with, I would recommend buying property in an area that you are familiar with, for example, so that you don’t inadvertently buy a property in a bad area simply because you didn’t know any different. An added benefit is that you can save some costs by doing some of the property management yourself if you are living locally,

3. Talk to local letting agents to find out what types of property are in demand, what are the best type of tenants to target, which type of properties the tenants stay longest in, what the rental values you can expect for different types of property.

4. Calculate the costs that you will incur by renting the property. Things like agents fees, repairs etc. Know which costs you have to pay as the landlord, and which costs the tenants are responsible for. Again, you can ask a letting agent to help you with this.

5. Consider newer properties as the maintenance costs should be less.

6. Find out what tax you may have to pay on your rental income, and what costs are allowed to be offset against the income.

7. Once you know your expected rental income, costs and tax, decide whether you still think this is the right investment for you. What you are trying to achieve is a positive cash flow, so that your rental income is greater than all of your costs including mortgage (and the amount of income you would have earned from the deposit money if you had invested it elsewhere).

8. If possible, a great time to buy is during a downturn when prices are lower. We purchased our first rental property when prices were low after the global financial crisis.

9. Although I said in my recent how to retire early blog post that I don’t like debt, having a mortgage to buy property can be an exception. This is because you effectively get your tenants income to pay the mortgage for you which means that at the end of the day your tenants have bought the property for you. We purchased our first rental properties with a mortgage, but paid extra off the mortgage when we could.

10. Use any surplus cash generated from the property to put towards your next rental property purchase (don’t spend it on other things).

11. And I’m going to say it again, starting early means that you can have any mortgage paid off before you retire, so that you maximise your retirement income i.e. you have the rental income but no mortgage cost.

I should also say that you must make sure that you can afford the purchase, and that you can still afford it if you have an empty period for a month or so, the mortgage rate increases or you have an unexpected repair to make.

It’s really not complicated, but you do have to do the math to make sure that you can afford it and to make sure it is going to give you the return that you want. The great thing  is that the income from the tenant can cover the mortgage and property running costs, which means that your tenants effectively buy the house for you over time. Provided you start early enough, by the time you retire young, the mortgage can be paid off and you can just get the rent money each month for your retirement income. It has worked for us (and I don’t even count the increase in the property values, that’s just a bonus if we ever decided to sell any of the properties)!

Source