How to build a property portfolio

Start with the numbers

Every purchase should stand on its own. Check three things:

• Gross yield: annual rent ÷ price × 100. A £150,000 house let at £1,000 a month is an 8% gross yield.
• Net cashflow: rent minus mortgage interest, letting fees, insurance, repairs, voids and compliance costs.
• The lender’s rent test: buy-to-let lenders usually want rent to cover the interest by 125% to 145% at a stressed rate. That rent test, not your income, often caps how much you can borrow.

Ways to grow a portfolio

1. Buy, refurbish, refinance

Buy a property that needs work, improve it, then refinance on the higher value to pull some or all of your cash back out for the next deal. The purchase and works are often funded with refurbishment bridging, then refinanced onto a buy-to-let mortgage: the bridge-to-let route. Run the figures in the HMO deal builder.

2. Buy below market value

A genuine discount builds equity on day one. Some lenders advance against value rather than price; see below market value bridging. Auctions are a common source; see auction finance.

3. Release equity from properties you own

As values rise or mortgages fall, refinancing an existing property can release a deposit for the next one. A bridging loan can raise the money faster when a deal won’t wait, with the refinance as the exit.

4. Higher-yield strategies

• HMOs: higher rent per property, more management and regulation. See what is an HMO.
• Multi-unit freehold blocks (MUFBs): several flats on one title, bought as one property.
• Title splits and conversions: splitting a block onto separate titles, or converting a house into flats, can add value. You’ll need planning permission, building regulations sign-off and a lender that will accept it.

Personal name or limited company?

Under Section 24, since April 2020, landlords who own property personally can’t deduct mortgage interest from rental income. They get a tax credit at the basic rate (20%) instead. Higher-rate taxpayers can end up paying tax on profit they haven’t made.

A limited company deducts interest as a business cost and pays corporation tax on profit, at 19% to 25%. That’s why many portfolio landlords buy in a company or SPV. But:

• taking money out of the company as salary or dividends is taxed again;
• company buy-to-let rates can be a little higher;
• moving properties you already own into a company is treated as a sale, so stamp duty and Capital Gains Tax can both apply.

Take advice from a qualified tax adviser before you choose a structure or move properties.

Once you have four or more mortgaged properties

Lenders treat you as a portfolio landlord once you have four or more mortgaged buy-to-let properties, under Bank of England (PRA) rules introduced in 2017. They look at the whole portfolio, not just the new purchase. Expect to provide:

• a property schedule: address, value, mortgage balance, lender, rate, rent and ownership for every property;
• income and expenditure for the portfolio, and sometimes a short business plan;
• evidence the portfolio as a whole passes a rent test, as well as the new property.

Keep the schedule up to date. It’s the first thing any lender or broker will ask for, and it makes every future application quicker.

Risks to plan for

• Interest rates: stress-test your portfolio at higher rates before you remortgage or buy.
• Voids and arrears: keep cash reserves for empty months and repairs.
• Regulation: tenancy reform, licensing and energy efficiency rules all add cost. The government has proposed raising the minimum EPC for rented homes to C by 2030.
• Concentration: too many properties in one street, town or tenant type increases risk.

Mortgages are handled by a regulated firm. DasLend refers buy-to-let, limited-company, HMO and commercial mortgage enquiries to a firm authorised and regulated by the Financial Conduct Authority, with the permissions to advise on and arrange them. That firm, not DasLend, gives any advice and arranges the mortgage.

Frequently asked questions