How to build a property portfolio: your ultimate guide
This article is for general information purposes only. It does not constitute financial, tax, or legal advice. Property investment carries risk and may not be suitable for everyone. You should seek independent advice from a qualified financial adviser, mortgage broker, or tax professional before making any investment decisions.
When you build a property portfolio, you’re creating a business that aims to generate rental income over time. It may also increase in value as house prices appreciate and you make improvements.
Building a portfolio of several properties reduces your risk. Tenants suddenly moving out becomes less of a problem, and unexpected maintenance costs like boiler replacements are spread across your entire business.
Having a successful property portfolio also offers the pleasure of giving tenants a fair deal, and high-quality accommodation in an area where they want to live.
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A property portfolio is a collection of investment properties that give you the benefits of diversification.
While most portfolios focus on classic buy-to-let properties, others may blend them with houses in multiple occupation (HMOs) – normally defined as having at least three tenants not from the same household – and holiday lets.
Some property portfolios also include commercial property.
When you build a property portfolio you’re creating a business. Your aim is to build a portfolio that gives you two benefits. Firstly, a stable and growing income. And, secondly, property that increases in value over time.
Many landlords also take pleasure from providing high-quality houses for tenants to live in.
Owning more than one property brings you the benefits of diversification, which tend to increase the more you own. Diversification smooths the impacts of tenant voids and unexpected maintenance bills. You can also spread your administrative costs such as accountancy bills and maintenance across your portfolio.
A stable, growing rental income
The first way you profit from your property portfolio is through the rent you receive from tenants.
Typically, your tenants in a buy-to-let property pay their rents monthly. However, holiday let rents are paid either when the tenant books or after they arrive for their stay.
The average gross buy-to-let rental yield in the UK is 5.8%, according to Zoopla. You can calculate the yield as a percentage of a property’s value – so a £100,000 house with a rent of £6,000 a year would have a yield of 6%. This figure is for illustrative purposes only and should not be taken as a projection of future income. Yields vary significantly by location, property type, and market conditions.
However, your real income is your net rental income after ongoing costs such as maintenance and mortgage payments.
Increasing property value
The second way you make money from property is through any increase in value. Over the years, property prices have appreciated with inflation, though past performance is not a reliable indicator of future results. Yet the level of any mortgage you have borrowed to buy your property remains the same. Borrowing to purchase means any change in the property's value, up or down, affects your return on the capital you invested.
You can also actively increase a property’s value through renovation or improvements. You might also buy in an area where urban regeneration or new transport links look likely to increase values.
It’s important to note that you can’t be certain property prices will increase from one year to the next.
Advantages of diversification
As your portfolio expands to include several properties, you gain from spreading your risk.
This means that voids between tenants or big maintenance expenses – such as replacing a boiler – become less of a problem. Voids and maintenance are a normal part of the property business and often happen when least expected. But if you have several properties, the costs are spread across them.
You also gain from diversifying your portfolio across types of property and area. Types of residential property include classic buy-to-let houses, HMOs and holiday lets. Compared to standard buy-to-let properties, HMOs and holiday lets typically involve more hands-on management but often earn higher yields.
Similarly, buying commercial property – offices, warehouses or shops – as part of your portfolio can increase your income yield.
You can start to build a buy-to-let portfolio with one property – perhaps investing as little as £20,000 or £100,000. Or if you have more to invest you can buy several properties straight away.
Some landlords choose to set up a limited company rather than operate as a sole trader. There are potential tax differences between these structures. You should seek advice from a qualified accountant or tax adviser before deciding which approach is right for your circumstances.
How to grow your portfolio over time
If you start by buying one house, you can learn the trade of being a landlord as you go.
Some landlords start with a first house, perhaps increase the value by extending or improving, and then buy a second property. If a property increases in value, you can borrow more money against it to help raise your deposit for the next house. Over the years, you can do this repeatedly.
You may also find that housebuilders offer discounts or stamp duty contributions on new build homes in slow housing markets. This can help you to build a portfolio by making your money go further.
When setting your property investment goals, consider both the rental income and increases in value. The former is easier to predict, as you’ll have a good idea of the average rents in your area. But increases in value depend on whether you’re relying on broad market increases or plan to add value through renovating or extending your property.
Setting your goals for rental income
Finding out how much rent you can charge is relatively straightforward. There will generally be a going rate for rents in your area. You can find this out by talking to your letting agent or looking on a property portal.
However, you should also estimate the level of start-up and ongoing costs to reach a net figure. You may also want to allow for any time without rent if you think it may take a few weeks to find a tenant.
Your start-up costs include:
- Solicitors’ fees
- Stamp duty
- Marketing costs to find tenants
- Improvement costs
- Cost of registering as a landlord
Your ongoing costs include:
- Maintenance to the fabric of the house
- Plumbing costs (e.g. boilers need to be replaced every 10 years or so)
- Electrical certificate costs (every five years)
- Gas safety certificate costs (annually)
Setting your goals for uplifts in value
There are three reasons why your property might increase in value: renovations that you carry out, increased demand for property in the local area and national UK rises in house prices.
Firstly, you can estimate how much renovations and improvements may increase the value of your property. For instance, if you convert the loft – adding a bedroom and en-suite bathroom – local property prices should indicate the rough increase in value. It’s important though to calculate building costs, allowing for the contingencies that typically arise.
Secondly, you can buy in areas where urban regeneration and new transport links often act as catalysts sparking increases in prices. In this case, you can set approximate goals.
Thirdly, in a buoyant housing market with low interest rates property prices rise across the country. Additionally, property prices have tended to rise in the UK over the long-term. You can set goals for long-term rises but they’re harder to predict.
When financing your portfolio, you typically use a mix of your own money and mortgages. You can choose from a range of different types of mortgages as we explain below.
Quite how much you borrow depends on the lender. At the time of writing, some lenders are willing to lend up to 75% of the purchase price – known as 25% loan-to-value. The more you borrow as a percentage of the purchase price, the greater the cost of the loan. Your mortgage broker can explain.
The structure through which you hold and finance properties, for example as an individual or through a limited company, can have different tax implications. A qualified accountant can advise on what may be appropriate for your situation.
Interest-only versus repayment mortgages
Mortgage lenders offer either interest-only or repayment mortgages. These names describe the difference well. You either just pay the interest on the loan, or you pay the interest and repay the mortgage debt. Interest-only mortgages have lower monthly payments than repayment mortgages, as you are only covering the interest rather than repaying the loan itself. Each option has different long-term implications, and your mortgage broker can explain what suits your circumstances. You might prefer the repayment option if you’re looking to repay the loan over time rather than maximising your income.
Portfolio mortgages
If you have several buy-to-let mortgages, you can consolidate them under one mortgage agreement. This is designed to streamline administration, as you have just one lender and may be able to make only one monthly payment. You may even be able to secure properties against each other.
Holiday let mortgages
If you buy a property as a holiday let you’ll need a specialist holiday let mortgage. As holiday lets don’t have the income stability of tenancies, you may find that mortgage lenders charge higher rates of interest.
HMO mortgages
When buying an HMO, you can get a specialist mortgage. Again, this may have a higher mortgage rate than a typical buy-to-let mortgage, as HMOs require more intensive management, have more regular tenant turnover and potentially more void periods.
When choosing properties for your portfolio location is key. Some locations may be more sought after and easier to let than others. However, properties in less desirable areas often produce higher rental yields. Be clear about what you’re looking to achieve when choosing your location.
If you want to build a classic buy-to-let portfolio, you need to concentrate first and foremost on achieving as high a rental yield as possible. However, you may also want to buy a modern house that should be easy to let, cheap to maintain and with an energy performance certificate (EPC) rating of C or above.
If you’re buying with a view to increasing value, you want to have a plan. You might look for a house where you can convert the loft or alternatively, you might want to buy in an area where urban regeneration makes an increase likely.
If you’re looking to create an HMO portfolio, you need to buy a house with sufficient bedrooms that will meet your local authority’s licensing requirements. Check what these are but they can be extensive, including requirements covering room sizes, the number of bathrooms, fire safety and so on.
Finally, if you’re choosing a holiday let property you want to be sure it’s right for you. If you’re aiming to list on Airbnb, check to see you’re not buying into an area that’s saturated with similar properties. Your property needs to stand out – the quality of furniture and fittings, the cleanliness and position can all help achieve this. If your holiday let is available for letting for 140 days in England each year and is let for at least 70 days under current rules, it qualifies for business rates and there’s no council tax to pay. Different rules apply in Northern Ireland, Scotland and Wales.
Building a successful property portfolio takes a mix of long-term strategic planning and active management.
The buy-refurbish-rent-refinance method involves buying distressed or uninhabitable properties, quickly refurbishing and then renting out. After that you can refinance the property and use the freed-up capital to buy the next house.
Buying higher yielding properties also helps to build your portfolio. HMOs are the highest yielding properties. Recent research shows HMOs in the UK achieving average rental yields of 7.0% compared with a 5.8% average for normal buy-to-lets. However, HMOs require significant management, with more tenants and demanding council licensing requirements.
Airbnb holiday lets can also achieve high yields; however, this is an increasingly competitive market.
When deciding how to manage your property portfolio, you have two options: either you manage it yourself, or you can employ a letting agent.
Self-managing your portfolio
If you choose to manage your portfolio, you’ll find there’s a lot to do. Your most important task is to find the right tenants for your property. To do so, you must market your property, conduct viewings, and choose your tenant. You should then assess your tenants’ eligibility with the following five checks:
- Right to Rent check. Under the Immigration Act 2014, landlords must check that all occupiers aged 18 or over have the right to live in the UK, verifying original documents such as passports and visas.
- Check that your prospective tenants have sufficient income to meet your affordability criteria
- Credit checks are strongly recommended, particularly since the Renters' Rights Act has limited landlords' ability to decline tenants on other grounds. A credit check gives you a clearer picture of a potential tenant's financial history and helps you make a more informed decision.
- Contact previous landlords to confirm that tenants have paid the rent regularly, looked after the property and behaved well.
You can find more details on First-Time landlord checklist page
As a landlord it’s also your responsibility to maintain your property. The better you do so, the better quality of tenant you can hope to attract. You must investigate emergency repairs that pose a risk to health or safety within 24 hours. These risks include total loss of heating in winter, severe electrical faults, major structural problems and more.
Turning to holiday lets, management tends to be more intensive. You need to actively market your property, clean it between tenants and generally make sure it’s maintained to a high standard. With so many Airbnb properties, the market is highly competitive, so you need to stand out.
Employing a letting agent
You can employ letting agents to take on all or part of your property management. They generally offer three levels of service:
- Tenant find only: Marketing the property, conducting viewings, vetting tenants (references/credit checks), and drawing up tenancy agreements.
- Rent collection: In addition to finding the tenant, the agent collects the rent.
- Full management: The agent handles everything, including day-to-day management and property repairs.
Agent fees vary depending on the level of service and the area.
For holiday lets, you can find specialist agents who handle Airbnb marketing and cleaning.
- Location, location, location - The old adage holds true. The better the location, the easier to let and the higher the rent.
- Don’t overpay - The price you pay for your property will affect your yield. The less you pay, the higher your return.
- Maximise your rental income - Make sure that your rents keep up with the average in your area.
- Take pride in the condition - The better the condition, the easier you’ll find it to attract good tenants at a fair rent.
- Watch your expenses - Don’t overpay for maintenance. For instance, if buying a new kitchen or boiler look for good quality at a reasonable price.
- Compare mortgage costs - Always check your mortgage costs. It may be worth employing a mortgage broker.
- Consider a limited company - Some landlords hold properties through a limited company. The tax implications vary depending on individual circumstances, a qualified tax adviser can help you understand whether this is relevant to you.
Ultimately, building a property portfolio is a learning process. You can start small with just one property and learn to manage and expand your portfolio in whatever way suits you best.
You may to choose to buy properties that you can refurbish before letting, focus on maximising yields through HMOs, or specialise in Airbnb holiday lets.
At the NRLA, we’re here to help you build a thriving portfolio based on fair relationships between you and your tenants.
Join the NRLA
Get expert guidance, trusted tools, and a community that understands what it takes to be a landlord.
This content is available to NRLA members. Join today for full access to advice, resources, and support built around your needs.
Property Portfolio FAQs
How to build a property portfolio with £20k?
It is possible to start building a property portfolio with a relatively modest sum. Many landlords begin with a single property, learn the process as they go, and gradually grow using increased property value to borrow against and fund future deposits.
Is building a property portfolio worth it in the current property market?
Building a property portfolio can offer two core financial benefits: a reliable rental income and long-term property value appreciation. Owning multiple properties also helps spread risk, meaning voids and unexpected costs have less impact on your overall income. As with any investment, it's important to go in with realistic expectations and a clear plan.
How many buy-to-let mortgages can I have?
There is no set limit on how many buy-to-let mortgages you can hold. As your portfolio grows you may want to consider a portfolio mortgage, which consolidates multiple mortgages under one agreement to simplify administration and payments.
How many properties can you own?
There is no legal limit to how many properties you can own. Many landlords start with one and gradually expand, using equity built up in existing properties to fund further purchases over time.