May 10, 2023
It may feel like a big leap, but there are some persuasive financial reasons why purchasing a property portfolio can be a good move if you’re looking for a good deal when investing in the buy-to-let market.
Against the higher initial outlay can be set tax advantages, not to mention the prospect of earning a greater income from day one. Additionally, purchasing a portfolio of properties needn’t be overly-complicated if you have the right help.
As a property professional, well-versed in the practicalities of handling property portfolios on behalf of our clients, I’ll guide you through the considerable benefits and possible pitfalls of property portfolio sales.
What is a property portfolio?
It’s an obvious question to ask and the answer is straightforward: a property portfolio is a collection of investment properties owned by the same person, or company.
Whether it’s better to own them in one person’s name, or through a limited company is something we’ll cover later in this article.
The benefits of owning a property portfolio
We’ve written about property portfolios previously and you can read our thoughts from 2021 in this piece ‘What Are the Benefits of Buying a Property Portfolio in Scotland?’
There have been some changes to the tax environment since then, but the information remains relevant, so we’ll outline some of the benefits here.
1. No ADS, and LBTT or SDLT relief
Property taxes in England are different to those in Scotland, however there are still benefits from purchasing multiple properties simultaneously. HMRC explains how Stamp Duty Land Tax (SDLT) relief works in this article.
This is a complex subject as anyone who has read the guide from HMRC can attest. It’s worth speaking to your accountant or solicitor to clarify where your liabilities will fall, especially in England, where SDLT relief is not particularly straightforward.
With the Additional Dwelling Supplement in Scotland now at 6%, the opportunity to avoid this considerable cost is attractive. In addition you may qualify for Land & Building Transaction Tax relief.
TIP: You can read Scottish Revenue’s up-to-date information on this page.
2. Buy one, get one free!
Ok – not quite, but there are economies of scale to be had by the investor purchasing a property portfolio. You may be able to negotiate a discount on the portfolio purchase itself although always be certain that the overall deal makes sense.
Additionally you may be able to agree favourable terms with solicitors and finance brokers when you’re arranging a larger purchase. That said, professionals who deal with property portfolios are somewhat niche, and that’s reflected in their fees.
3. More tenants mean more income
The majority of portfolios are offered for sale with sitting tenants. This brings several benefits to the buyer.
You’ll get rental income from day one as tenants are already in situ and, given the competitive nature of the rental market in the UK at present, will probably be quite happy to stay where they are.
Tenanted properties should all be up to standard and properly maintained. At a time when you’re making a substantial investment, not having to find the costs of refurbishment is a substantial saving in itself.
In addition, if you’re using a factor or property management company to manage your properties, you may be able to negotiate a better rate with them if they’re handling multiple properties on your behalf.
This applies to maintenance contractors too who are usually happy to take on guaranteed work at a discounted rate.
4. Lego(™) isn’t the only block
You may get the opportunity to purchase an entire block of properties, giving you complete control from entrance to roof. There are practical advantages here, relating to maintenance and upkeep which might be appealing.
It may also suit you, as a landlord, to have all your properties within one, discrete geographical area rather than widely spread around a city or county.
The possible downsides to a portfolio purchase
Cost
It is axiomatic that if you are going to buy a number of properties simultaneously, the cost is going to far exceed that of buying a single buy-to-let opportunity. Therefore, if you’re not a cash buyer, financing such a move is likely to require specialist brokers.
Ongoing costs will also be higher, simply because you are obliged to maintain a greater number of properties, however, this would also be the case if you were to add properties one at a time to your portfolio.
That said, these increased costs should be more than offset by your cumulative rental income.
Finding a portfolio of sale
Property portfolios are not something you are going to find in the window of your local estate agents, so you are going to have to use professionals who specialise in this area of the property market.
Your contacts can help here as well as they may hear of an opportunity that might interest you. Portfolio sales are most commonly conducted off market and will be most likely subject to negotiation rather than a bidding war.
Complexity
The legal and financial work surrounding the purchase of multiple properties is more complex and can be more costly when compared to a simple, single purchase. That said the demand is clearly there and there are specialists who can help.
The increasing popularity of purchasing a property portfolio has prompted us to add a dedicated Portfolios page to our website.
Sole trader or limited company?
This is a subject that attracts many column inches within the property sector and we are not immune to commenting!
We’re not going to rehash all the arguments here, but it is likely that once you are responsible for numerous properties, you would be better served operating as a limited company.
It can bring tax benefits and greater flexibility, despite the changes coming with regards to dividend allowances. As ever, we suggest that you speak to your accountant before making any decisions with regards to your tax affairs!
Advice from the property pros
Purchasing a property portfolio isn’t for everyone – the fact that the vast majority of landlords own only one rental property attests to that. However, if you have been bitten by the property bug, it can be an ideal way to grow your business.
Although initial outlays will be considerably higher, so will the resulting rental income and you should be able to negotiate better rates with regard to agencies and maintenance companies.
You may want to hold a greater reserve in case of unexpected repairs or other costs such as void periods, but with multiple properties you can reasonably expect a steady income stream over the longer term.
The tax regimes in Scotland and England differ but they both offer inducements in terms of relief for the purchase of multiple properties. Likewise the legal systems are different, but not in a way that should favour one over the other.
In summary…
Portfolios took a long time to become an established part of our business, but once they did they established themselves quite firmly. As a consequence we have amassed a great deal of experience of handling sales and purchases for our clients.
Prices vary enormously and we have handled portfolios from £300,000 up to in excess of £4,000,000. Heady stuff!
All of this means that we are well-placed to help you if this is the next step in your property journey. We know the benefits and the possible downsides and we are always happy to sit down and talk through your options.
Hopefully you’ve found this useful; it’s a big subject and we’d strongly advise exploring all aspects of purchasing a property portfolio with trusted professionals covering all aspects of the undertaking.
We’d be happy to help with this, or any other property-investment related questions you have – just get in touch!
Written by Chris Wood, MD & Founder of Portolio
Get in touch on 07812 164 842 or email [email protected]
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