Looking to scale your portfolio? Here’s some top tips for seasoned investors

Sometimes even seasoned investors will need guidance, help and assistance, particularly during times of crisis and uncertainty.

With the ongoing Covid-19 pandemic, and the upcoming end of the Brexit transition period, it's more important than ever for experienced investors to know how to scale their portfolio in the right way. Here, Francis Ribeiro, senior portfolio manager at property investment firm Thirlmere Deacon, offers some top tips. 

Unlike the last recession driven by the property market and the financial crisis, this time around the market looks very solid. Banks have enough funds in their reserves, the demand for buy-to-let is still high. 

If anything, we are actually experiencing a minor correction, driven by the lack of physical activities during the lockdown.

However, despite the pandemic, property prices have hardly been affected. Top analysts in the industry expect a ‘V’ turn recovery in the market. With the prediction of the gradual return to normal, we expect in the next 8 to 16 months the level of transactions to be back pre-Covid-19 lockdown.

Many seasoned investors may be now looking to get back into the market and scale their portfolio. So, below, we have put together some hints and tips to help investors make the right choice:

Where is the best place to invest?

The best place to invest at the moment is where you get all the solid fundamentals - major employers in the area, high demand for rental property and good rental yields. City centres and satellite locations - where you’re getting the benefit of their ripple effect - are great options.

Recent research from Mojo Mortgages shows that the L7 postcode in Liverpool is top of the market in terms of buy-to-let (BTL) rental yields, generating 10.30%, with an average asking price of £95,000, according to analysis by Mojo Mortgages.

Data from the UK Land Registry, Zoopla, OnTheMarket and PropertyData.co.uk show that Bradford BD1, Sunderland SR1 and Middlesbrough TS1 follow Liverpool L7, with yields of 10%, 9.40% and 8.80% respectively. Even postcodes towards the lower end of the top 20, such as those in Aberdeen and Glasgow, are returning yields of 7%.

Five more Liverpool postcodes feature in the top 20, with yield returns ranging from 7.40% to 10.30%. In Bradford, with the BD1 postcode returning a rental yield of 10%, the average asking price is £57,000. The North West is one of the top regions for strong buy-to-let yields.

Diversifying your portfolio

Spreading the risk across different investment properties is a smart move for investors. Even if you experience issues with one property, the performance of the other properties in the portfolio can provide damage limitation.

So, what diversification strategies should you consider? Firstly, it’s worth looking to other asset classes within property, such as HMOs and semi-commercial properties. HMOs offer very high rental yields, especially in towns and cities with a large density of students and young professionals. Semi-commercial investors benefit from the saving on the additional 3% stamp duty surcharge, which is normally levied on investment properties.

The second is simply a geographical one. As all experienced landlords know - the location of your rental property is key and some UK towns and cities perform significantly better, compared to the UK average. There are significantly higher yields in regions outside of London and the South East, particularly in the Midlands and the North.

Mortgages

It could be a great time to expand a property portfolio. Major buy-to-let lenders have launched new products such as The Mortgage Lender, which has increased its loan-to-value (LTV) from 65% to 75% on all buy-to-let (BTL) remortgage products. Castle Trust Bank has recently unveiled a range of buy-to-let (BTL) products up to 75% loan-to-value (LTV), with instant terms available from the lender’s BDMs.

The products are available as two, three and 5-year fixed rates, with an automatic switch to a variable rate for a total term of 10 years.

Property prices

New data from GoCompare reveals that the North of England offers some of the most affordable property for buy-to-let investors who are considering expanding their portfolio. The study shows that Burnley in Lancashire topped the chart as the cheapest place to buy at this price - although it does depend on how big a house you’re looking for. 

A flat in Burnley would cost buyers just £58,895 - the cheapest home to buy in the whole of the UK. However, buying a detached property in the area will set you back £162,429 - though this is still cheaper than anywhere else in the country. 

Stoke-on-Trent was close behind as the next cheapest location, with an average asking price of £109,450. Blackpool, Barnsley, Middlesbrough and Doncaster were the next most affordable on the list.

Investing through a limited company

Rising numbers of landlords are choosing to register as a limited company to manage their portfolios, as BTL investment is not as profitable as it used to be. So, for some, incorporation may be a wise move.

However, there are some key differences. When the limited company owns the properties, the company also owns the profits – so landlords will probably have to pay income tax on any money they’re paid by their limited company.

Limited companies pay corporation tax, not income tax. And corporation tax rates are lower – by April 2020, they will be 19%. Limited companies must keep accounts detailing all income and expenditure, and all purchases using company money must have a demonstrable benefit to the business.

*Francis Ribeiro is senior portfolio manager at Thirlmere Deacon Property Investment

*Last month, Thirlmere Deacon - founded by Stuart Williams - outlined why property investors should be considering Preston