- Compare quotes for buy-to-let mortgages
Once you've had a buy-to-let for a couple for years you'll have got the basic principles sorted.
- You'll understand how to get new tenants
- You'll understand how to keep the property in tip-top shape
- The rental income will be covering the outgoings and your mortgage payments
And now your mind will start to turn to how to build your budding property empire.
There are no magic tricks involved in building a property portfolio. The idea is to use the increased value of your first property as the deposit for your next property.
Example:
You buy your first buy-to-let with a �50,000 deposit and a buy-to-let-mortgage of �150,000. The property increases in value from �200,000 to �250,000. You use the increase of �50,000 as the deposit for your second property.
This approach to growing your property portfolio has been responsible for the rapid growth in popularity of buy-to-let in recent years. It works well when property prices are on the increase.
So are there any other ways of growing my portfolio?
In a slower moving property market another technique is to go for interest-only buy-to-let mortgages. With these types of mortgage you are only paying off the interest each month, rather than any of the capital. If you were to stick with an interest-only mortgage through the length of the mortgage, at the end of it you would only be left with your deposit.
So why use an interest-only mortgage? The benefit is that your monthly repayments are kept to a minimum. This means you can maximize your short-term returns, giving you more money to invest in deposits for new properties.
Example:
You get an interest-only mortgage of �150,000 and, with a deposit of �50,000, you buy a buy-to-let worth �200,000. Each month you pay only the interest due on the �150,000 loan. At the end of the mortgage, say after 25 years, the property sells for �300,000. Out of this you pay back the original £150,000 mortgage, leaving you with �150,000 (�50,000 deposit, plus �100,000 profit).
Using this approach, it may be possible to grow your portfolio of properties more effectively in a period of slow, or no, growth, in the property market.
So should I be interested in growing my own property empire?
Here are some tips to help you decide if increasing your number of buy-to-let properties is the right decision for you:
Build on what you know: It can be a good idea to stick to one type of property and rental. For instance, terraces rented to students or executive-style apartments. This will help to build your expertise and give you a sound model that you can keep repeating.
Enough hours in the day?: How much time you can spare to work on your property portfolio. If you've already got a buy-to-let property, think about whether you have any extra time to spare.
Plan for the downside: You can plan for success, but you also need to make sure you are covered if the property market makes a turn for the worse. Especially make sure you can cope with changes in interest rates, and work out how many weeks per year you can stand not having any paying tenants.
