With interest rates remaining low for the past few years people are looking for alternative solutions to grow their wealth.

When house prices fell from their all-time high those with the cash viewed this as an opportunity. Although the residential market has remained slow since prices changed, the investor market is booming with more and more people viewing property investment as the key to securing their dream of long term financial security, and looking to buy property quickly from vendors to increase the amount of secured equity in their investments.

With a nationwide shortage of housing in the UK, this is likely to cause a further surge in demand for rental properties, which in turn will lead to an increase in rental yields. This is causing more and more of us to turn to property investment to make our fortune.

For anyone interested in building a property portfolio, whether they want to acquire their first investment property or they want to add to their existing portfolio there are some important decisions to make to maximise your chance of future success.

Obviously one of the first decisions is looking at your existing finance and setting a realistic investment goal. Are you looking for positive short-term cash flow or long-term opportunities to add value?

Once you have identified your goal, if you are fortunate to have sufficient funds without the need for additional borrowing then the potential profit you can receive from your portfolio will increase. If, like many you will be relying on a mortgage to fund your dream then once you have established your borrowing capacity, then it is time to do some research into the best lenders. A financial adviser can assist you with identifying a goal that is suitable to your situation and a mortgage adviser can help secure the best rates if you are planning on financing. However if your goal is to grow your portfolio in a short space of time don’t forget to check lenders conditions on the volume of properties you can finance and over what time period. It is also worth considering the pros and cons of an interest only mortgage. Interest only will offer a greater return then a repayment but if all your mortgages are interest only consider your ability to repay these mortgages in future if house prices did fall again. It is worth considering purchasing at least a proportion of your portfolio on a repayment, or outright if possible. You should always weigh up the risks since unless you are confident that you are purchasing a property at a price significantly below market value or you are adding value through renovation it may be unlikely to produce a large capital gain. The benefit of having more than one property and in more than one area is that you limit the risk if one of your investments does not perform as well as you expected.

Once you have confirmed your goals and secured your finance, before purchasing a property you should do plenty of research into the areas you are considering. Talk to estate and letting agents to the rental prices there, visit the areas to get a feel for them and the people that live there and factor in the cost of council tax in the areas as this is cost that you will be responsible for when a property is vacant.

Once you have identified areas that interest you, start small. See if you can purchase a property in a good area that is proven to perform well and have a strong demand for rental properties. Work with the estate agents and wherever possible find motivated sellers. These sellers will typically take reduced offers from buyers in a position to move quickly, securing a larger margin for capital growth in the future.

Risk vs reward of becoming a UK property landlord

Once you’ve purchased your first property, wait until it is let and producing a regular income. It is a good idea to use this period to gain more experience before considering adding to your portfolio. Remember, you will be responsible for all maintenance for a property. Like any new home purchase, the first few months of living in a new house can produce a lengthy list of things that will need to be put right. Just like you would need to resolve these issues if you were living there, you will need to be prepared to cover the cost of any maintenance issues your tenant finds upon moving in and maintenance costs should be factored in to your regular costs of being a landlord.  This is one of the reasons that those new to the world of property investments often find it useful to have an agent manage their property, at least at the beginning. Although the management fee an agents charges will further affect the return you receive from the property in the long term the benefits usually outweigh this. Having the experience of an agent manage your property will mean you are more likely to find suitable tenants more quickly, develop useful business contacts, meet other landlords and learn the tricks of the trade. Importantly, you will have more time if you work full-time or have family commitments and this early period while you are adapting to your new life as a landlord will quickly establish how involved you would like to be in managing your portfolio.

Once you find yourself in the position of positive cash flow, as your experience grows you can look to acquire more properties. As your portfolio grows, managing does become more complex, as does managing your finances. A good accountant is therefore vital to ensure that you are managing the portfolio like a successful and professional business. Depending on the level of your success, the more properties you add to your portfolio, the more difficult it can become to continue to source finance. However, as your experience grows you can then consider expanding your property search to locate ‘up and coming’ areas. These areas typically offer lower purchase prices offering better value for money and they have the added advantage of providing properties that have the potential to increase in value in the future.

With good financial advice, competent management and forward planning you should be able to build a solid and sustainable investment property portfolio that will offer long term financial security.