How to Build a Property Investment Portfolio that Generates Passive Income

Are you retired or close to retiring and want to generate some additional income without having it tied up in riskier investments? Or are you an enterprising business owner that wants to build a stable, passive income with property investments? Perhaps you have a young family and want to leave your full-time job to spend more time with them as they grow up.

 

Whatever your reason for wanting more money, without spending extra time, building a property investment is a fantastic way to build passive income. But where should you start and how do you go about creating such an investment strategy for long-term success? 

 

In this blog post, we’ll provide you with everything you need to know about building a property investment portfolio – from initial considerations such as taxes and regulations to strategies for successfully growing your net worth. Let’s explore the ins and outs of constructing a robust property investment portfolio that will help generate passive income for many years to come.

 

 

What is passive income?

Passive income is a steady stream of revenue that continues long after the initial work is done. Essentially, it’s a way to monetise your assets work and make them work for you, so you don’t have to.  As Paul Smith always says “The price of anything is the amount of your life you exchange for it”. If you want to make money while you sleep, socialise or sunbathe, there are numerous ways to achieve passive property income is a great option.

 

How to make passive income with property

Perhaps the most common way to make passive income in real estate is buy to let. Through renting out properties and collecting rent from tenants, you can make decent monthly income. 

With the right permissions, you can also let out individual rooms in larger shared house. This strategy is known as HMO (house in multiple occupation) and can be more lucrative than buy to let.

For a higher return on investment, but potentially higher effort, serviced accommodation is a great option. Serviced accommodation (sometimes referred to as short-term let or holiday let) is the process of letting out a property by the night.

If you want the security of longer term lets, you may want to steer away from the residential market and opt for commercial property.

For a strategy that can be combined with rental strategies and gives you the benefit of accumulated capital appreciation, look no further than buy and hold strategy. 

If you are looking for an option that involves no effort at all, investment trusts (REITs) are a way to diversify your portfolio and earn passive income. With REITs, you don’t need to do the work, but still reap the benefits. 

Continue reading to discover the benefits and drawbacks of each method so that you are able to choose the ideal passive income strategy for you.

 

How can I make passive income with buy to let property?

Investing in buy to let property can be a great way to generate passive income. Renting out your property can provide you with a steady stream of income that requires minimal effort on your part. 

However, from finding tenants, chasing rent payments to organising repair work buy to let can also can take a lot of time and effort. The solution to this issue is outsourcing the day-to-day running of your by to let portfolio to a property management service, which can be done through high street letting agents or searching for alternative providers on the internet.

Letting and managing agents can provide three different services to assist you:

1. Letting only
   If you want an agent to market your property, find a tenant, and provide a tenancy agreement, letting only is the option for you. The agent will charge you a one-time fee, typically equivalent to one month’s rent. You’ll need to decide if you want to charge a deposit and how much it will be. The landlord or agent must protect any deposit for an assured shorthold tenancy in one of the three Government-approved tenancy deposit protection schemes.

2. Letting and Rent Collection
   This option involves finding a tenant and collecting rent on their behalf. The agent charges a one-time letting fee and a monthly fee (usually around 5% of rent) for rent collection. You’ll be responsible for property management duties like repairs and arranging possession at the end of the tenancy.

3. Full Management
   If you’re looking for a complete letting and managing agent, full management is your best bet. The agent handles everything from starting the tenancy to rent collection and repairs. They’ll even take steps to end the tenancy if needed. This option is more expensive, usually costing between 10-15% of the rent, but it’s worth it if you lack the time or expertise to manage the property yourself. Be sure to agree on repair responsibilities and the authorised cost of repairs with the agent, and keep in mind that if repair costs exceed income, the owner is responsible for paying any shortfall.

To be completely passive, you should choose full management. Whilst this will lower your return on investment, it will make it easy to scale your property investment portfolio and have the freedom to choose how you spend your time.

 

Are HMOs a good source of passive income?

Are you looking for a passive income source that offers higher yields than traditional buy-to-let investments? Then HMOs (Houses in Multiple Occupation) could be the answer. Essentially, a HMO is a rental property for three or more people from different households. Each tenant has a private bedroom, while other communal spaces like kitchens, bathrooms, and dining areas are shared. HMO investment means buying a property to rent out for co-living purposes to multiple tenants – usually young single professionals, students or those on low incomes. Also known as multi-let, house share, or bedsit, HMOs can offer up to three times higher rental yields than a typical buy-to-let property, making them an attractive option for investors. Not only do they provide a steady stream of income, but they also require less time and management costs as all of your income comes from the same property. 

Location is key when it comes to HMO investment – look for areas with high demand from tenants and good transport links.

However, there are some drawbacks to investing in HMOs. It can be difficult to find suitable properties due to strict regulations and planning permission requirements. Additionally, you may need to invest more money upfront as you may need to make improvements or renovations before renting out the property.

Overall, if you’re looking for a passive income source with higher yields than traditional buy-to-let investments, then investing in an HMO could be a great choice.

 

Can you make passive income from serviced accommodation?

Serviced accommodation is becoming an increasingly popular option for property investors in the UK looking to generate passive income. 

This type of investment involves renting out a unit or home on a short-term basis, usually through platforms such as Airbnb. 

The average yield from serviced apartments is typically around 6.5% to 9%, but this can be much higher with the right location, an appealing property and exceptional service.

Despite the higher yields of this method, investors may be put off by thinking that is less predictable than other methods, however this is easily mitigated with thorough due diligence to choose the right area, ensuring that your property has the ‘wow’ factor, pricing accuracy and advertising it well.

Once again, by using a property management service, investors can benefit from streamlined processes and operations for their properties. This includes automatic synchronisation of bookings, calendars, and rates from the top booking sites, as well as full-time professional hands-on management. Property managers also provide tailored services to meet the needs of each investor, such as leasing assistance and rental yield maximisation. They can also provide/organise the day-to-day necessities that make serviced accommodation much more ‘high maintenance’ than other methods. Everything from cleaning to laundry, providing keys to guests and even welcome gifts can be arranged. 

With the help of the right property management service, investors can rest assured that their serviced accommodation investment is in good hands.

Additionally, there are many ways to automate processes and reduce the amount of time spent managing the property, making it an attractive option for those seeking passive income. For example, automated messaging systems can be used to quickly answer repeat questions from guests without needing to manually respond each time. 

It is important to note that your property needs specific permissions to be used as serviced accommodation. 

With careful planning and research, serviced accommodation can be a great way to make passive income in the UK. To find out everything that you need to know for your serviced accommodation business plan, our Serviced Accommodation Blueprint course is a fantastic option.

 

Why invest in commercial property for passive income?

Investing in commercial property is an excellent way to earn passive income and boost profitability. Commercial properties can be more valuable and provide higher returns on investment compared to residential ones. With a strategic approach, property investors can benefit from both rental income and capital appreciation over time.

Fortunately, commercial properties are relatively easy to manage, with tenants often responsible for maintenance. Meanwhile, longer-term leases (3-10 years is common) provide greater security. For those who don’t want to be hands-on, commercial property management services can handle tasks like rent collection and tenant communication.

Moreover, investing in commercial real estate can diversify your portfolio and add stability to your investments. You can also take advantage of tax benefits through depreciation deductions to reduce taxable income. Overall, commercial property investing is another excellent option for passive income.

 

 

Are REITs a good choice for passive income?

Real Estate Investment Trusts (REITs) are an attractive vehicle for UK property investors looking to generate passive income. REITs enable investors to access equity markets and benefit from performance related to the underlying property assets, without any tax on profits generated from rental income or the sale of rental properties. This makes them a tax-efficient option for those seeking to invest in property.

REITs also offer a diversified portfolio of properties, meaning that investors can spread their risk across different types of real estate investments. For example, Ediston Property Investment Company (EPIC) generates the majority of its profits from retail parks, while The PRS REIT focuses on residential properties.

In addition, REITs are listed on the London Stock Exchange and are therefore easy to buy and sell when needed. This makes them a great choice for those who want to make regular investments or withdraw their funds quickly if necessary.

The negatives of REIT investment are that it can be difficult to research non-publically traded REITs and if they are publicly traded they risk of losing value as interest rates rise, as they usually send investment capital into bonds. Furthermore, Additionally, as investments are made on your behalf, this is not an option for investors that like control over their assets.

 

Why is ‘buy and hold’ property an excellent passive income strategy?

The buy and hold property strategy is an excellent passive income strategy for UK property investors. This long-term investment approach involves purchasing a property and holding onto it for an extended period of time. Uniquely, an advantage of this strategy is that it can be combined with recurring rental income to build wealth over the long term. The buy and hold strategy also helps protect investors from housing price fluctuations that impact those selling property for a quick profit. Additionally, this strategy provides multiple benefits such as high leverage, high ROI, appreciation, passive cash flow and tax wise advantages. You can also periodically release the accumulated value from your buy to hold investments in the form of equity release, which can be reinvested to expand your property portfolio more rapidly.

With the right research and due diligence, UK property investors can make sound buy and hold investments that will yield them consistent returns over time.

 

How can Touchstone Education help you build lucrative passive income?

To make the most passive income possible from property investment, you need the developed understanding that comes with studying the best property investment courses uk.

Wealth Through Property is the UK’s leading 2-day property investment course. It is designed to provide you with specialist knowledge of proven investor strategies. Learn how to get started and build your property portfolio and gain real-world advice.

Alternatively, make the first steps on your property journey, claim your free Wealth Through Property e-book.

To find out more information about the property investment courses we offer call us on 01302 897131 or email office@touchstoneeducation.li.