Expanding your property portfolio

Expanding your property portfolio has tremendous rewards. If you get all the houses on a single street for example you then build a hotel to collect even higher rent when people pass through.

In all seriousness though, there are several reasons why you would want to expand your property portfolio. The two most significant reasons are fairly obvious:

1) Increased profits – More property at least in theory means more rent coming in each month after all.

2) Spreading risk – If one of your properties stays empty for a period of time or a set of tenants stop paying rent, this is much less of an issue if it’s not the only property that you’re relying on.

If life were simple, that would be all you needed to worry about when deciding whether or not to expand your portfolio and I could wrap up this post early and go for my lunch, but sadly it’s not.

The Risk analogy
Lets gun for board-game reference number two. If you’ve played Risk, you know how hard it is to expand quickly. If you cover a lot of ground in a short space of time, you can’t keep it stable for very long and it all implodes in on itself, which is why you quickly learn Australia is small and manageable and Asia is massive and impossible.

This can also happen with your property portfolio. If you’re not careful, you might find that the rental income is not enough to cover mortgage repayments as well as the extra costs of having more to manage. The slightest hiccup and you’ll find everything coming crashing down around you.

Having a larger property could begin to eat up too much of your time to be financially viable. You might find that keeping on top of property issues becomes closer to a full time job and may require you taking on additional staff.

In addition to general expansion risks, investing in property is of course always a risk by itself. Having a rough idea of what the market is up to is invaluable and buying at the wrong time could easily spell disaster. Several professionals far more steeped in property issues than myself claim that the buy-to-let boom has long drawn to a close, so it is worth reiterating that one should approach this sort of investment with caution.

What you don’t need to worry about
There are however plus sides to not starting from scratch. Having already successfully managed your first property (and if it’s not successful then no, expanding is definitely not a good idea), you will have not only learnt a lot of lessons that are applicable to your second, but you will have even done some of the leg work. For example, you will most likely have already built up a relationship with a network of tradesmen that you can rely on for maintenance, you might have had some experience working with letting and estate agents and you will have already researched landlord insurance options.

Summary
Expanding your portfolio is a risk, but buying your first property was exactly the same. The rewards can be great and it can even boost your financial security. So long as you go in knowing what to expect, you could find taking steps to build your property empire to be hugely rewarding.

Written by YOUR Insurance, a broker specialising in small business insurance and landlords insurance.