Buying an investment property – portfolios and multi-property purchases
So you are looking to become a career landlord or at least have a multi-property portfolio. If you are new to buying investment property, one way to kick-start your portfolio is to consider buying someone else’s existing portfolio. This can be a great way to expedite the process and gain established rental properties that should have been successfully tenanted in the past or currently. But there can be some downsides to this approach, and you do need to do your homework when looking at a multi-property purchase.
Why might an investment property portfolio be up for sale?
The most common reason for a landlord to sell their property portfolio as a group is because they want to cash out the business. This is often due to retirement, but can also include needing to sell due to health concerns, wanting more cash money to use, or moving away. Over the last few years, we have seen an increasing number of older multiple-property landlords selling their properties, either individually or as a group, to leave the rental market. In most cases, the pandemic had either forced them to release cash from their investment or they had taken the opportunity to retire.
It is important to establish why the landlord is looking to sell the properties as a group, as occasionally there may be an underlining issue for sale. For example, the properties may need heavy investment to meet the new rental property standards. This isn’t necessarily a deal-breaker on purchasing the properties, but it would need to be factored into the price and your plan for the properties.
Sometimes multiple properties are also sold through probate due to the landlord passing away. This can make the buying process more complex, but it can offer a really good deal on properties as solicitors want to move quickly. For more on probate properties in general, check out this blog.
What questions should you ask when buying investment properties as a group?
Beyond the normal questions you might ask when viewing a rental property to purchase, you may also want to think about asking some additional questions when looking to buy a block of properties.
How is the property owned/registered?
Firstly, it is worth finding out how the properties are owned/registered and how this will affect the purchase of the properties. For example, they may be owned by an individual landlord, or they may be owned by a company of which the landlord is a director.
If it is the latter, then you may need to find out whether the landlord is looking to sell the company as a going concern or whether they are simply looking to sell the properties themselves. This will impact the sale process and the due diligence you will need to do on the purchase.
You should confirm if each of the properties has its own deeds or if any of the properties are on the same deeds. This would likely only be the case if the properties are on the same piece of land, for example, in the case of an older property with a newer addition in the grounds.
Can you view all the properties in full?
You should also make an effort to view all the properties in full, rather than assuming one or two properties will give you an accurate idea of the other properties. This is particularly important if you are buying properties such as flats in the same building, as it is easy to assume two identical flats owned by the same landlord will be the same in upkeep, level of finish and standard.
Are there sitting tenants?
If a landlord is selling a group of properties as a portfolio, there is a good chance that some, if not all, of the properties will have sitting tenants. As such, you need to find out what contracts are in place with each of the tenants, how this has been managed previously and the rental values currently being charged.
Often in these cases, the rents being charged may not have increased for many years, and you will need to consider if you are willing to take on tenancy agreements with rents below market value. You will also need to know how you will increase rents to market value. Will the current tenants be able to increase their rents, or will you need to give them notice and advertise for new tenants?
The contracts with the tenants may also reveal conditions or allowances that you may or may not be comfortable with. Consider how this will affect the value you place on the properties and the way you intend to manage the properties moving forward. To find out more about sitting tenants, read this blog.
Having said all of that, sitting tenants who are good tenants, have been in the property for some time and pay reasonable rental values can be a godsend. They effectively mean you have a landlord business up and running, all ready to go as soon as you take over.
How can we help you to find the right investment property for you?
If you are looking to purchase a property portfolio as an investment, we recommend speaking to a letting agent who can advise you on the possible pitfalls and help you review the values of different properties from a buy-to-let perspective.
At Bright Star Lettings, we have many years of experience in the property market and often work with landlords to help find the right property, or property portfolio for them. We also have access to experts who can assist you with many of the common issues, such as EPC assessors and trusted trade professionals.