Whether you’re a seasoned investor or a property enthusiast, you will have been told ‘property is a long-term investment’. In many ways it is, but that doesn’t mean to say that a successful property empire can’t be built within a short space of time.
Of course, building a property portfolio demands a lot of research and planning, but what worthwhile investment doesn’t?
Property is often considered a more flexible investment asset in comparison to others, with it typically requiring less maintenance than stocks and cryptocurrency, while offering a lot more flexibility. Property investment provides a wealth of different avenues to suit each and every financial goal, whether that be through a single property or an established portfolio.
But how long does it take to build a property portfolio? Leading UK property developer, SevenCapital, discusses how investors could achieve a successful property empire in just five years:
Where to Start?
Investing in property is usually relatively straightforward, despite any worries you might have as a first-time investor. However, as we mentioned, there are a lot of different routes you can go down to build your property empire, including investing with equity, a Real Estate Investment Trust (REIT) or property crowdfunding.
Investing in property doesn’t always require you to have a spare £50,000 readily available, with alternative routes, such as releasing equity being common for a lot of investors. Releasing equity through either remortgaging or getting a second loan will give you a good basis for a deposit, and is especially helpful for those who are ‘asset rich’.
Equity is a great avenue if you want to single-handedly build a property portfolio, but for those who don’t have the time (or resources) to do so, REITs are also an option. Defined as a collection of shares in property, either residential or commercial, these assets add up to create a portfolio.
Investing in a ready-made portfolio without having to do all the research, what’s not to like? At face value, this might seem a simple, yet effective, way of building an empire, but on closer inspection, it isn’t. Due to the nature of a REIT, 90% of all rental profits will need to be split between all stakeholders, meaning any returns are considerably lower than if you were to build your own portfolio.
Property crowdfunding is pretty self-explanatory, but is essentially a group of investors pooling their money together to own shares of a property’s equity – which can be done either with the profit upon sale, or with the monthly rental income. While this investment route can allow you to gradually build a portfolio, much like REITs, the returns are generally fairly low.
Knowing where to start can be one of the most difficult parts of building a property portfolio, but being aware of your options makes the process much more manageable. For those looking to build a successful property empire, you’ll want to pay particular attention to rental income and capital growth, as opposed to splitting your profits.
Scale, Scale, Scale
Imagine this, you’ve decided on your financial approach and have your first Buy-to-Let property, but how do you turn this into an empire?
One word – scale.
In the grand scheme of things, five years isn’t a great deal of time, but with a clear plan and goal in place, building a successful property empire is achievable. With this in mind, the property market can fluctuate a lot within this time period, bringing with it both highs and lows.
Building a property empire over a five-year period is feasible by scaling on an annual basis, adding a new off-plan property every year. After starting with a single property and adding one per year, assuming your previous investments see capital growth, you can quickly put together the foundations of a high-quality, long-term property portfolio.
The third year of your investment journey will likely see your first property complete, which in turn, will mean you start paying mortgage repayments. However, rental income on the property should equate to around 125% of this repayment, covering these monthly costs with relative ease. As you see your first two properties continue to grow in profit, this third addition to your empire will also allow you to benefit from staggered off-plan completions.
By the fourth year and fifth year, your properties should have gradually completed and continue yielding a passive income, one of which could be used towards a deposit for your final two properties. Once you have your fifth property under your belt, it should mainly be a case of maintaining your rental income.
On a long-term basis, your rental income will continue covering your mortgage repayments and once these are cleared, you’ll be left with all profit – minus any payable service charges and general maintenance costs. If you’re investing in properties of around £200k, this could see each asset grow by double the original price within 20 years, which when expanded across all five properties could mean an empire worth close to £2,000,000 – all from an initial investment of £250,000 over five years.
Building a property empire within five years can be challenging, despite the straightforward example we have given, but once you’ve reached this point you can choose to simply focus on sustaining your portfolio. Whether you choose to be a hands-on or hands-off investor, managing your time in the market will be crucial.
Although you should probably have an idea of your intended holding pattern at the beginning of your investment journey, it’s not uncommon for investors to decide on a specific period while they establish their portfolio. However, this holding pattern will largely depend on your financial goals, and whether you’re looking for short-term returns, or a long-term investment based on capital appreciation.
Regardless of how long you choose to stay in the market, during this hold period, it’s often recommended that investors build up a financial ‘safety net’. All investments come with their risks, but buy-to-let property comes with the possibility of void periods. Although research can usually give investors an idea of what tenants are looking for in a rental property, void periods across a portfolio of numerous properties can cripple a portfolio, especially with mortgages to consider.
So, can you build a property empire in five years? If you have an accessible route to start you off, an appetite for hard work, as well as potentially lucrative investments, this avenue could be your answer to financial freedom. While there is a lot to consider, the possibility of having multiple passive incomes on a monthly basis, as well as significant capital growth in the long-term, is often enough to encourage investors to consider building their property empire.
*Article intended as a guide. As with any investment plan, always seek advice from a qualified Financial Advisor.