At some point, all of the 10,000+ investors with Property Partner have asked themselves the same question – which properties should I select for my portfolio?
It’s a vital question. Successful investing in bricks and mortar involves many difficult and time consuming factors. Our platform is designed to address them all.
But the composition of the right portfolio lies at the heart of it. Here are some important principles that investors should consider.
Understand how properties are picked for the site
Investors should begin by studying the criteria used for including properties on the platform.
The selection process is run by our Director of Property, Robert Weaver. Robert is a hugely experienced residential property buyer, and the former Global Director of Residential Investment at RBS. A Fellow of the Royal Institute of Chartered Surveyors, Rob sits on the residential committee of the British Property Federation. He and his team have 68 years, 23,300 units and £1.54 billion of experience.
Robert and his team look to eight criteria in their selection process. These include the construction quality of the building – non-traditional builds are rejected as they can be difficult to mortgage. New builds are preferred, as they require less maintenance with less chance of inheriting repairs. Price forecasts from major estate agents such as Savills and Knight Frank are examined. Freehold locations in the commuter belt are seen as strong candidates, as they offer excellent tenancy prospects, combined with simplicity of management. Each location is visited and closely inspected.
After long and rigorous analysis of all factors, a shortlist of properties is created – then signed off by our Investment Committee.
The result is that only carefully selected investment opportunities that we would personally invest in make it onto our marketplace.
High rental income, or high capital gains?
Now it’s the investors turn to make their selections. The site makes it easy to scroll through the listings. Click on a property and to view the full details; you’ll find the floorplan, a complete solicitor’s report, and the surveyor’s report.
A key issue is to know your goals. Is the priority to maximise revenue through strong rental income? Or is the priority to target long-term capital gains, with rental income only a secondary consideration?
One of the advantages of residential property as an investment is that it can offer both, though the stronger the yield, often the lower the growth prospects, and vice versa. In general, it is about finding the right balance between the two, according to your investment goals.
For example, the North of England tends to offer higher yields as rents are higher compared to the property cost. This 10 unit block in Scarborough currently delivers 4.41% yield.
By contrast, yields for London commuter belt properties are generally lower. Growth has squeezed yield in these areas, and investors believe they will be compensated by further capital growth.
Finding the balance between these types of properties is key. Serious investors acquire shares in a variety of property types and locations, to ensure they are not over-exposed to any one segment of the market.
What else will affect the investment?
It’s also worth considering other factors which may be influential. For example, there may be a regeneration plan that will impact future prices. So far, the Crossrail development has catalysed price growth along its entire length.
Government investment projects may affect future prices. Abbey Wood, for example, is undergoing a substantial makeover, with a gleaming new station, library, and shopping concourse. There are no guarantees in investing, but the potential impact of those millions on the locality warrants investigation.
Property Partner helps with this research. Factors such as schools, transport links, and local attractions are usually cited in the listing’s investment case. It is possible to filter the marketplace based on this criteria, such as proximity to Crossrail.
Know the numbers
Investors must look closely at the financial numbers before investing. Our website offers all sorts of useful indicators for each listing, such as rent forecast, mortgage details (rate, length, and fixed or variable contract), and the historic house price index for the locality. We also include the aforementioned growth forecasts from major research houses where relevant.
Dividend yield is a key figure – and comes with an important footnote. Many landlords will be used to seeing gross rent. The rental yields on Property Partner are net of all costs. Maintenance costs, inspections, marketing, tenant costs, solicitors costs, conveyancing costs – all of these are factored in. The number you see on the site accounts for all of these outgoings so you don’t have to.
Unfortunately, many buy-to-let investors who go it alone fail to account for these costs. The headline or gross yield can therefore often be misleading. Comparing Property Partner yields (which are net of costs) with reported market yields (which are often calculated without considering costs) can be a false comparison.
No matter what numbers you look at, one universal principle of investing, across all assets classes, is to diversify. A broad spectrum of holdings is a great way to reduce the impact of an unwelcome event. Around half of investors acquire holdings in four or more properties. The recommendation of our Director of Property is to hold 10-20 properties to spread risk.
Review your strategy over time
Over time it may be necessary to make adjustments. Perhaps you need to cash out a fraction of your holdings, or see a better opportunity elsewhere on the marketplace. This is where Property Partner stands out from the traditional market. Our Resale market allows shares to be listed for sale and made available to other investors. This is a huge advantage over traditional buy-to-let, whereby a sale in a property is all or nothing, incurs legal costs, and can take months to arrange.
The beauty of property investing is that it’s easy to understand. Bricks and mortar generate rental income, and offer an opportunity for capital gains. Assembling a portfolio on Property Partner is something a newcomer can do with confidence. Research, think about your priorities, and invest. In the end, there’s no mystery to it.
Property Partner does not provide investment or tax advice and any general information is provided to help you make your own informed decisions.