What to Consider Before Expanding Your Property Portfolio

What to Consider Before Expanding Your Property Portfolio

Growing a property portfolio is a proven wealth-building strategy. Even as property markets continue to stabilise following a few years of disruption at both ends of the spectrum, investing in additional properties can yield tremendous returns if you go in with the right mindset.

That said, the leap from owning a single property (usually the one you live in) to managing multiple houses can be a tremendous and on-the-surface difficult jump. It requires you to be resilient, cautious and fully aware of what you will be entering into, as it’s not always sunshine and rainbows.

With that in mind, it’s prudent to break down some of the key expectations and considerations you will need to heed before pursuing such an avenue.

Establish your property investment strategy 

Before exploring new properties to buy, establish precisely what you want your expanded portfolio to achieve. 

Are you seeking steady rental income, long-term capital appreciation, or a balanced combination? Your goals will fundamentally shape every subsequent decision, from property type to location and financing structure.

Consider exploring additional markets, not just the UK

While many property investors would instinctively look at the domestic market, other countries‘ markets can potentially be more lucrative, depending on your requirements and access to capital. British territories, in particular, present alternatives worth considering, with countries like Gibraltar attracting increasing attention from discerning investors, due to its favourable tax laws and Mediterranean climate. 

Using this territory as an example, UK citizens are permitted to buy properties in Gibraltar, as detailed by legal experts Hassans, but they are bound by regional property ownership and purchase laws.

For those with appropriate risk appetite and capital positioning, territories with familiar legal systems and frameworks can be enticing, particularly if their markets look favourable. Such territories may also offer a different and more enjoyable way of life, thanks to better year-round weather conditions or European cultural customs. That said, it’s essential to conduct thorough due diligence and seek specialist legal advice from region-specific solicitors before committing to overseas investments.

Accessing sufficient finance and capital

Getting approved for and securing finance for additional properties is a process that’s dramatically different from obtaining your first mortgage. 

Lenders have markedly more stringent and rigorous criteria for assessing portfolio landlords, where not just individual property viability is considered, but your overall management capability and financial position are also scrutinised closely. 

Buy-to-let mortgages often require large deposits, and are invariably subject to higher interest rates. Lenders may also stress-test rental income against potential spikes or rate rises, if inflation looks unpredictable. As a tax-efficient advantage, some investors may opt to set up a limited company as a means of investment in additional properties, but such arrangements are subject to additional compliance criteria and costs, so may not be suitable for everyone.

To maximise your access to finance or capital, it’s wise to build strong relationships with mortgage brokers who specialise in accessing whole-of-market portfolio lending. They understand and maintain contact with lenders that can offer more competitive and cost-effective terms for your investment, and who can streamline the application process.

Tax implications

Investing in additional properties, understandably, attracts more stringent tax compliance and long-term net profitability. 

Stamp Duty Land Tax thresholds and rates vary depending on whether you're purchasing additional residential property, with higher rates applied to second homes and investment properties. The following obligations should also be closely considered before undertaking such an investment:

• Income tax on rental profits

• Capital gains tax (CGT) on property disposals

• Inheritance tax (IHT) planning

• The removal of mortgage interest relief for individual landlords

• Corporation tax on limited company profits (with mortgage interest deductions for some higher-rate taxpayers)

Professional accounting advice tailored to your specific circumstances is vital, especially as UK and international tax laws are changing regularly, as are ongoing reviews for ongoing compliance.

Location knowledge and presence

Partnering with experts who are familiar with the area of your chosen property or properties can be invaluable. For instance, at Maguire Jackson, we are deeply embedded within Birmingham, and can offer expertise in the high-demand city centre location, giving our clients access to a wide range of serviced apartments, flats and houses. Furthermore, we remain clued into Birmingham’s ongoing regeneration, expanding professional services sector, and property market conditions, as well as future development pipelines and infrastructure investment. We can, therefore, provide access to off-market opportunities and nuanced, tailored insights that you won’t find by scanning property portals for hours on end. 

Wherever you plan to venture to, whether it’s somewhere else in the UK or internationally, consult local specialists who can offer the same level of personalised service if you want to explore the entirety of the versatile market out there.

This doesn’t just apply to estate agents, but all professions across the property and financial sector: solicitors, financial advisors, surveyors, mortgage brokers, accountants, and more. Partner with the right people and you’ll find yourself in a much better position in the long run. 

Taking the next step

When you’re ready to expand your property portfolio, it should be met with excitement but some cautious optimism. Begin by clarifying your investment goals, understanding your financial capacity and risk profile, and aim to build a reliable team of trusted financial and property experts who can guide and steer you on the right path.

With the right approach and principles in tow, you’ll be in a solid position to maximise the potential returns of your venture, and thus your portfolio expansion can bring both financial independence and satisfaction.