How to build a property portfolio

October 6, 2012

Landlords Insurance

Here are a few general thoughts if you are a landlord who is at the stage of considering expanding your business from a single property to one that has a number of properties under management.

Spread your risk

Having an entire portfolio consisting of more or less the same type of properties targeted at the same type of tenants, might be a little risky if your particular customer segment is negatively affected by (e.g.) the economy.

For example, if the future DSS letting segment is badly affected by government cutbacks, you may find yourself embarrassed if all your properties are targeted at that sector.

Vary your geography

It is not unknown for some geographical regions to suddenly experience a big upsurge in demand for rental property whilst others see a decline.

As it is rarely possible to predict this with any great accuracy, once again, you may spread your risk if your properties are not all concentrated in one relatively small geographical area.

Of course, keep in mind that you may not want to spend most of your working week on the road getting from one to another. So, if you do spread them around, you may need to consider local property management companies to assist you in day-to-day management.

Keep a significant financial reserve if possible

Events over the last five years have shown that relying on the banks to always make available large sums of borrowed capital might be unwise.

When you have a property portfolio, you may find that you inevitably hit problems that require the signing of some relatively large cheques to resolve.

As you cannot absolutely guarantee any more that these events will be covered by loans when required, it may be wise to try and keep some cash in the bank if possible.

Think about consolidating your costs

Once you have a number of properties under your belt, you may be able to negotiate some significant cost reductions by looking for group deals on things such as the provision of services for insurance etc.

At CIA Insurance, our service includes the provision of advice on the subject of multiple property portfolio insurance – something that may save you significant money over purchasing individual policies.

Be sure you understand your liabilities and consider using an accountant

When you own a number of properties, it might be all too easy to focus on your capital asset values and to overlook the fact that your business also has liabilities that may be growing in line with your portfolio.

If you are not a natural book keeper and financial manager, make sure that you find a good accounting firm who understands these things and who will help you to avoid becoming over-extended.

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