How to Start a Property Portfolio in Central London

The private rental sector is going strong, with at least one-third of Londoners renting their home. Going into 2025, Zoopla have reported that rental demand is remaining high even as the intense pace eases, with enquiries from tenants seeking to rent still around 31% higher than pre-2020 levels.

As the capital’s growth in property prices continues to outstrip wage rises, the number of people renting their home is expected to remain high over the coming years.

While the buy-to-let landscape has changed significantly over the past decade, property investing can still reap good financial rewards for landlords.

Building a property portfolio in sough-after areas such as Chelsea, Paddington, Camden or Swiss Cottage can be daunting, but it needn’t be too tricky, especially if you take heed of the following steps to starting a property portfolio that the team here at Plaza Estates has put together:

1. Identify your long-term goals

Before you buy your first landlord property, think about your long-term goals.

Do you want to make returns regularly through rental income, or would you prefer to profit from the capital growth you acquire on selling the property? We recommend that you focus on your investment as a source of rental income – not capital growth through a house price gain.

You may need to hold onto the property for a long time to see it increase in value.

2. Consider your time commitment and involvement

Before you buy your first landlord property, it’s important to consider how you want to go about building a property portfolio:

• How much time can you devote to your property business?
• Can you easily visit the property?
• Are you confident that you can navigate current regulations, or would you appreciate more guidance?
• Do you want to focus on planning your next investments, or day-to-day workings?

There’s no need to be completely hands-on, in fact there are many options available.

• Solo management – Self-managing your investment properties can reduce fees, but the learning curve can be steep. A hands-on landlord is responsible for finding tenants, collecting rent payments and managing maintenance issues.
• Management services – Engaging your letting agent for certain aspects of property management means you’ll spend slightly more, but you can decrease your hands-on time and benefit from their expertise for tenant finding or rent collection, for example.
• Full management – Your management company can leave you free to continue your profession, enjoy retirement or pursue your next investments. The cost is higher, but they will handle everyday tenant communications, dealings with contractors and so on. Not to mention, professionalism counts.

Guaranteed rent services – A guaranteed rent service will pay you a regular rent for the property, which they then sub-let to tenants. The rent may be slightly lower than your property’s full potential, but the service will cover maintenance and any void periods.

3. Do your research

Like any investment, doing your research before dipping your toe in is essential. Spend time researching the buy-to-let property market to discover the best location and target market for your property investment business. For instance, you should consider aspects such as:

• Rental yields – Rental yield describes your annual rental income as a percentage of the property’s total value. Buy-to-let investors use it to determine whether or not a property will be a good investment. Look for areas and postcodes with the best rates of return. For more information, read our article on how to work out and calculate rental yield.
• House price growth – Property in most parts of the UK experienced huge growth in the past few years. In recent months the market has been settling, with the rising cost of living and changes in mortgage rates influencing buyers.
• Demand – Central London will always be able to attract tenants, thanks to its vibrancy and employment opportunities. Consider the type of tenant you hope to attract, and what will appeal to them when investing in property. Families will always want an area with a good school and parks nearby. Students will undoubtedly want to be within walking distance of their university or college – or be just one bus ride away.

Want to know more? Find out how to work out rental yield and explore the best buy-to-let areas in London.

4. Make sure you are financially ready

Consider your property investment options, as each has its pros and cons and calls for slightly different expertise.

• HMO property – Houses in multiple occupation (HMOs) can be lucrative. However, you may see higher turnover and they’re covered by tighter licensing and safety regulations.
• Student accommodation – Properties in easy reach of university campuses can attract student tenants, who may have lower expectations for décor but could generate more noise and wear and tear.
• Standard residential lets – Choosing the right target market, whether it’s family homes in a quieter street or a central flat for young professionals.
• Commercial lettings – Commercial rentals cover retail and office spaces, warehouses and more, and can more flexible than residential lettings. However, it can take longer to fill a vacant property and have a higher buy-in.
• Diversified property portfolio – You’re less reliant on demand from one section of the market, but you will need to master the quirks of each type of rental.
• Specialising in one particular property type – Gaining experience in your chosen type of rental property can give you confidence, but may leave you vulnerable to market shifts.

5. Make sure you are financially ready

Before you build a property portfolio, consider whether you have the cash available to buy a rental property. With the help of buy-to-let mortgages, buying your first investment property with a smaller budget is possible. However, most lenders will look for a deposit of 25% to grant you a buy-to-let mortgage, and a deposit of 40% or more often secures the best deals.

You must also pay stamp duty tax, a one-off tax paid when you buy a property in England and Northern Ireland. Stamp duty rates vary depending on the purchase price of the property. The amount you pay is calculated on the part of the property purchase price falling within each band. Buy-to-let investors must pay a 3% surcharge on each band.

Other buying costs and the costs of getting the property ready to rent include:

• Conveyancing fees
• Buying furniture
• Getting gas checks
• Organising an EPC
• Marketing

6. Start small and grow cautiously

Choose your first investment wisely and opt for a low-risk option. You might want to choose a property close to where you live as:

• You’ll know the area better
• Keeping on top of maintenance will be easier since you won’t have to travel far
• It’s easier to keep an eye on your investment, ideal if you’re cautious as a first-time landlord

If you want to grow an extensive property portfolio in the long term, start slowly and give it plenty of thought. Be careful of exposing yourself to too much debt, for instance. You may be forced to sell several properties if you cannot repay the mortgage for one of your buy-to-let properties.

7. Have an offer strategy

How do you start building a portfolio without spending over the odds? Refine your property strategy and think long-term. Follow wider property market trends and monitor upcoming local developments to get the timing right.

If you overspend on a buy-to-let property, it’s harder to make a good return on your investment. This tip doesn’t just apply if you’re working out how to start a property portfolio with no money to spare. Many property investors offer low to keep tight reins on their budget.

8. Understand the rules and regulations

Get to know the lettings industry inside out – and the relevant legislation and regulations. The buy-to-let sector has been subject to multiple changes in recent years, including safety checks that must be completed before your tenancy agreement is signed.

Some of the current rules around being a landlord and letting out property include:

• Stamp duty increases
• Changes to mortgage tax relief
• Tighter fire safety regulations for rented property
• Stricter rules around gas safety checks and electrical safety checks
• Energy efficiency expectations (the EPC)
• Legal obligations to protect your tenants’ deposits in a government-backed scheme and share details with the tenants

You can find more information on landlord safety checks here in our article.

Full details can be found on the government’s website under ‘landlord responsibilities’.

9. Choose good tenants and look after them

To build a successful property investment portfolio, choose good tenants and treat them well. You can encourage good tenants to stay in the property, eliminating the dreaded void periods, by:

• Screening tenants with credit checks and references to ensure they will pay promptly and look after your property
• Being friendly and approachable – but keep things professional
• Keeping on top of repairs
• Being easy to contact

Want to find out more? Discover the non-resident landlord scheme and the benefits of using a property management company.

10. Consider hiring a letting agent

Are you wondering how to start building a property portfolio while you work another day job? Property management services can give you the capacity to grow your portfolio of investment properties.

Among other things, a good letting agent can:

• Vet potential tenants
• Check they have the right to rent in the UK
• Collect payments
• Field maintenance requests

11. Always be vigilant of your cash flow situation

A property portfolio is a business, so don’t forget to treat it as such. Ensure you keep up with your finances, especially your cash flow situation. This can be made simpler by:

• Setting up clear systems to record incomings and outgoings
• Preparing for repairs and maintenance costs
• Keeping enough money to cover the mortgage payments
• Stress-test your calculations to ensure that you can financially cover void periods

As well as your finances, you must create a system to record all documents related to your tenants and the property itself.

12. Landlord tax

As a landlord, you must record rental income on your self-assessment form at the end of the tax year. Even if you presently pay tax as an employee, you must declare rental income separately when you start building a property portfolio.

Tax is due on profitable income after you have deducted allowable outgoings. To find out what you can claim, go to the government website and look under self-assessment for landlords.

13. Would company status suit you better?

If you have several properties – and certainly at least a handful – then registering as a limited company may be more profitable for you in terms of tax payments. That’s because corporation tax is lower than income tax for higher-rate taxpayers.

Whether this is more tax-efficient will depend on your personal circumstances and portfolio, so it’s best to get advice from an accountant familiar with property matters.

Small portfolio – If you plan to have just one or two properties yielding a modest income, it may be best to stick to paying income tax.

Larger portfolio – If you envisage having several properties in your portfolio eventually, limited company ownership may be worth considering at the outset before you start buying more properties. That’s because switching from self-assessment to company status will mean paying capital gains tax on your properties when you ‘sell’ them to your company.

14. Diversify

As you grow your buy-to-let portfolio, remember to diversify your investments. Investing in just one area or type of property limits your potential and makes you susceptible to failure if the market slows in your particular niche.

When adding additional properties to your portfolio, consider investing in a different property type or area.

15. Have an exit strategy

Keeping your exit strategy in mind can help you make sensible decisions throughout your investment. The goals you identified when you initially decided how to start a property portfolio will tie what you do when it comes to selling your property.

For instance, if you are investing to build a retirement fund, you will want to generate as much rental income as possible before selling at the optimum time.

16. We can help

Approach your local estate agents and make the most of their first-hand knowledge of the area’s property market.

If you are considering central London as a location for your first rental property, get in touch with the team here at Plaza Estates. We are happy to provide no-obligation advice on how to build a portfolio in Paddington Basin, Hampstead, Little Venice, Holland Park or Mayfair. We can also show you some of the available properties that may suit your budget and intentions.

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