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How to scale up a property portfolio with a partner

09.11.2017 Site Manager

Property auctions offer the asset diversity, competitive prices and speed investors need to scale up a financially viable portfolio. Better funding access, coupled with growth in the sector, mean that investing at auction is no longer a preserve of those with the biggest pockets. Investment appetite at auction is notable and there are deals to be had. If you’re a homeowner looking to make the leap from occupier to investor, however, you’ll need to start with the basics.

One of the biggest, and most challenging, basics to address is financing. Outside raising funds from friends and family, teaming up with a finance partner, or co-investor is the most popular way to start a scalable property business. As we discuss, there are a set of key agreements to decide first so you can move forward with a defined strategy.

Asset type

Ask yourself, what do I want to invest in? To be successful as an investor, you not only need the funds to scale up a portfolio, you also need a direction of travel with your partner. Specifics include asset type (residential or commercial property, development sites, garages, HMO property, etc.) and/or generic characteristics, for example, tenanted homes, city centre developments or out of town locations.

Strategy

Get a broad sense of your plans:

  • Will you focus on short-term or long-term assets?
  • Will you develop a property for improvement and sell, or hold on to a long-term rental asset for continuous income?
  • How long will you remain in a specific asset market before moving into another? For example, transitioning into the commercial sector after 5 years in the residential sector.

Your role as an investor

Set out your individual role in the company, and everyone involved will divide oversight and input in the business. One participant may want to take an advisory role, for example, while the other may want to provide the cash for very little hands on input.

Capital

Discuss total funds required, what everyone can realistically bring to the table, how that fund will be divided and whether you need an additional investor(s) to bring your vision to fruition.

Funding

If you cannot raise the total funds you need, or you don’t want to tie up all your cash in a single property asset, decide on whether you want to seek leverage from the bank in order to increase your investment options and financial flexibility. Alternatively our auction finance specialist, Together Finance, may be able to assist.

Acquisition strategy

Working closely with one partner should help you to streamline your acquisitions, i.e. what property or site you want to buy, based on asset and financial strategy. If more than one partner or investor is involved, acquisition approval would go to a vote.

Profit sharing

Divvying rental income or the proceeds of a property sale is usually straightforward. If an investor defaults, which can scupper an entire arrangement, then other arrangements will need to be discussed. The initiator of an investment opportunity may occasionally expect a bigger reward, for example, returned capital plus notional interest. Once a profits procedure is in place for a single asset, it shouldn’t be a problem to follow as you scale up your portfolio.

Disposal agreement

Seldom do investment partnerships hold on to assets for a lifetime. Once the time comes to dispose or divest an asset, usually due to ageing or a change in yield performance, all those involved are usually required to vote to approve a sale or another way of disposal. This is often done by a 75% or unanimous agreement. However, if you’re simply working with a single investor, the process should be straightforward.

Exit

Rather than hold your partner hostage, set up an exit strategy if or when they want to exit an arrangement. You will want to look at how their stake in the arrangement is managed, and how that interest will be offered to an outside investor.

 

Whatever the size of your ambition, the key to financing and scaling your portfolio is finding good deals that a co-investor can’t resist. The property auction room is a go-to place for buyers to either take their first investment steps and others looking to grow - sometimes substantially - their portfolios in a single day. Contact our team at sussex@auctionhouse.co.uk to discuss your options, or join us at an upcoming auction.