The rental market in Scotland still has a large percentage of landlords who have only one property for let. What if you’ve decided that one is simply not enough? Is buying a property portfolio the best way to expand?

There have been some changes since last we wrote about this subject; Additional Dwelling Supplement (ADS) has increased to 8% and Capital Gains Tax (CGT) allowances have been significantly decreased.

The ecosystem, so to speak, has changed, however those changes do not diminish the attraction and value of buying a property portfolio.

As a business, we specialise in portfolio sales and purchases, accruing experience and insight into this market over the years, so let’s take a look at the value and benefits inherent in portfolio sales.

A portfolio of benefits

(Or why buy one when you could buy many?)

There’s nothing wrong with increasing your property holdings one purchase at a time, and some investors are happier with this, arguably, more cautious approach.

However if you are convinced that increasing your property holding is right for you, buying portfolios can offer several benefits.

• Tax advantages. In Scotland you’ll pay Land and Buildings Transaction Tax (LBTT) on every purchase, and where that purchase is not your principal residence you will also have to find an additional 8% of the purchase price in ADS.
• Where you buy a portfolio of 6 or more properties you can offset ADS by claiming Multiple Dwelling Relief (MDR), significantly reducing the tax burden. As with most tax matters, this isn’t entirely straightforward but you can learn more here.

The Scottish Government reviewed the operation of MDR in Scotland, seeing it as “foregone income”. However, they decided not to change the system at present, so MDR is still available to portfolio buyers in Scotland.

• More properties mean more rental income and more resilience in case of voids. If you only own one property a void means continuing costs in the face of no income.

• If you own six properties, such a void means loss of 1/6th of your income until the property can be rented again, with the remaining 5/6th generating continuing income to support your investment.

• Likewise in a portfolio it is to be hoped that every property is enjoying capital growth as opposed to just one property doing so.

• If you’re purchasing a portfolio with tenants in-situ, all the properties should be fully compliant with the necessary laws and regulations.

• Buying a property portfolio may give you more room to negotiate on the price, as opposed to buying a single property. Some agents have noted a change in that recently, so don’t take it as read that large discounts are a given.

• Landlords who own multiple properties are in a better position to negotiate bulk discounts with the tradesmen necessary to maintain the quality of those properties. One flat is just a job, six flats are good earning potential.

• The potential return on investment is multiplied with every property in your portfolio – one property’s capital increase may fund your retirement, the return on several properties should deliver an even better lifestyle.

• When you buy a portfolio, the legal necessities will be handled as a single, linked transaction, which can have an impact on your costs and the stress involved with any purchase.

• If you’re buying tenanted properties, and there is a high chance you will be, you’ll receive rental income from day one from all of them, sparing you the effort of finding tenants.

The serious bit

It would be disingenuous of us to suggest that purchasing a portfolio is a stress-free walk-in-the-park, punctuated by nothing but sunlight and birdsong. It’s a serious business undertaking after all.

• Finding the right portfolio. Portfolio sales are often off-market sales, in other words not advertised by run-of-the-mill estate agents.

If you’re new to portfolio buying, take your time to find out who the trusted sources of property portfolios are in the areas in which you’re interested, it will pay dividends in the longer term.

• Cost. While the cost of suitable investment properties varies enormously, buying many of them at once will cost more than only buying one. This is largely true, but it’s not universally true.

The cost of buying a portfolio can start from around £300,000. That being the case, you’ll understand that financing a portfolio purchase may cost no more than investing in a single three-bed family home.

• Mortgage rates are likely to be higher than for domestic buyers, but you will enjoy the benefits of income and capital growth from your investment. You will however most likely need the help of a specialist broker to secure finance.

• Legal costs will be higher than if you were buying a single investment property, although they should be less than the cost of several individual purchases. Again, it’s worth finding lawyers who specialise in this field.

• You’ll have to add in the costs of any surveys you might want, auditing of properties, rent histories, compliance and tenants. This is simply the cost of buying responsibly, ensuring that it is an investment rather than a headache.

• The expense of ongoing maintenance for multiple properties will inevitably be higher than for a single property. That is offset however by the greater income you’ll receive from your properties.

• Landlords who have previously operated as sole traders may find that incorporating as a limited company is beneficial in the long-term. A discussion with your accountant will help you determine whether this is right for you.

Advice from the property pros

Buying a property portfolio isn’t for every investor; judging by the number of single-property landlords, many out there are happy to keep their investment in property at a relatively low level.

However, if the property bug has really got under your skin, portfolios are well worth your attention, as they’ll grow your investment by leaps and bounds. You’ll see both increased income and hopefully increased capital growth.

That income will start as soon as the deal is concluded as many investment portfolios are sold with tenants in-situ, cutting down on the work you have to do.

They come at a cost, but that cost may not be as high as you imagine and when weighed against the returns, they’ll make good business sense.

Buying a property portfolio isn’t just about doing what you can to negate ADS, it can be a very smart investment for your future.

In summary…

The clue is in the name, “Portolio”. Looks very similar to ‘portfolio’ doesn’t it, and that’s because portfolios are something of a specialty of ours.

We believe in the intrinsic value that buying a property portfolio offers, providing that it’s the right choice for you and how you see your investment journey.

That’s why we’ll always offer to sit down and talk through the pros and cons of this kind of property investment, to do our best to ensure that you are making the right decisions.

If you’ve already dipped a toe into the buy-to-let market, considering the addition of a portfolio could well be the next step you take. We’ll happily help you chase your goals.

Thanks for reading, and if you have any questions about portfolios, or buy-to-let property in general, just get in touch.

Written by Ross MacDonald, Director of Sales & Cofounder of Portolio

Get in touch on 07388 361 564 or email to [email protected]