How to Review Your Property Portfolio
Having negotiated the purchase of your property and now settled, you are probably starting to relax and think that it’s now a case of ‘set and forget’.
In reality, all property needs to be managed and maintained, but let me explain why ‘set and forget’ is a really bad idea!
Like any asset or investment, you need to keep check on how your property is performing over time. Many investors I come across have no real awareness as to how and at what rate their property has performed, let alone what the opportunity for future capital growth is like.
If you have invested in managed funds or shares, you will mostly likely receive an Annual Report from the fund manager or company identifying what has transpired during the year from a costs, growth and performance perspective.
Property is no different, however most investors only take into account the costs and tax benefits when they lodge their tax returns, but don’t take into account annual growth or ongoing opportunity for growth, from both the perspective of capital and rental growth.
Why and Frequency
Markets change regularly and these changes can work for AND against you.
Todays ‘hotspot’ can become tomorrow’s flop.
The benefit of doing such monitoring is to ensure that your property is still performing to expectation, and that you don’t get caught out in the event that the market turns.
Ideally you should revisit the reasons why you bought the property every 12 months to monitor the local situation. However, if the area is in the media or there is unusual activity or talk about the property market there, review more frequently. If you don’t stay on top of it, it could cost you dearly!
Don’t fall in love with your property
No matter how new the kitchen is, how beautiful the little courtyard out the back is, or how much space and light is in the entrance, DON’T FALL IN LOVE WITH YOUR PROPERTY!
This is a property business, and you need to treat it as such. If you are buying a property to live in, it’s ok to be emotional (providing those emotions don’t lead you to paying too much for it or buying the wrong property) but it’s best to remain detached with investment property.
Getting emotionally involved can make it harder for you to make the right decisions as a business person. Falling in love with property makes it harder to cut your losses and sell if it is no longer performing, or unlikely to continue to perform over the longer term. Likewise, staying frozen in fear and distrust can prevent you from achieving your goals altogether.
What to review
Microeconomic indicators need to be taken into consideration when reviewing your property portfolio as well as when determining where to buy in the first place, including:
- What influence are the local factors having?
- What are the levels of employment and economic growth, and are they increasing or decreasing?
- What is the population demographic made up of and is this likely to change?
- What infrastructure is being built by local and state governments?
- What else is driving supply and demand?
- And what else did you take into account when buying in the first instance that you should review?
These need to be researched and analysed, and then you need to make a decision based on the outcome of this research. If you haven’t done this before, I encourage you to engage an expert to assist you.
It isn’t always necessary to sell a poor performing property if research shows justifiable potential or opportunity for growth in the future. The blanket response of automatically selling can only be determined by doing the research and considering your options, so be wary of anyone suggesting this option without having provided individual analysis of the property.
What to do with a dud property
Once you have done your analysis, if it looks as though it’s not going to improve and you choose to take no action, at least your expectations are now realistic as they are based on fact. You can now sleep at night (hopefully) because knowledge is power and you no longer have your head in the clouds.
Alternatively, if you wish to take some action, such as selling it, so you can free up your borrowing capacity, it is worth analysing what your break-even point will be once you take into account all of the ‘exit’ costs for selling the property (sales costs, capital gains tax if any, etc.), your entry costs for buying into your next property (stamp duty, legal etc.) and how long it will take based on an assumed capital growth rate and rental return (which ideally will performing above the average) to break even.
It could be one year or five years, but at least by buying smarter next time and implementing the steps in this book, you will be well on your way to becoming a Prosperous Property Owner.
Some of the article content is extracted from the book Property Prosperity – 7 Steps to Buying Like an Expert by Miriam Sandkuhler © 2013, with the author’s permission