View your property portfolio as a business
The beginning of a new financial year is a good time to sit back and analyse your property portfolio in the same way any small business should analyse its performance writes Patrick Bright.
Too often, I find investors are reluctant to question whether their property investments are getting the best return. For some reason they seem to favour leaving them to tick over in the hands of a property manager. Regardless of whether you have one, three, five or more properties you need to treat them all like a business and undertake regular reviews. Ideally these reviews should be done six monthly but no less than annually. You need to ask the tough questions on a regular basis if you want your investment to perform at the highest level.
As a stocktake, here are five questions that you should ask to help you review your property portfolio:
1. AM I GETTING THE BEST POSSIBLE RETURN ON MY INVESTMENT?
If you want to maximise the return on your investment you must ensure you are receiving the best possible return on it. Insist that your property manager undertakes regular rent reviews to make certain your rental rate matches or exceeds current market values and if it’s consistently falling below the mark, then you’ll need to ask why? As a starting point ask yourself: “Have I selected an inefficient property manager or have I purchased a property that is performing poorly and will continue to do so?”
2. AM I PLANNING ON ADDING TO MY PORTFOLIO?
By writing down clear goals for the future growth of your portfolio you should be able to determine how much money you’ll need for the necessary deposits and incorporate this information into your overall financial plan. Make sure you work out whether you’re buying properties to hold for the long-term or whether a buy, renovate and sell strategy would be better suited to your needs. You will need to factor in any major changes to your likely income (e.g. plans to start or grow your family) or expenditure streams when examining the timeframes needed to save the deposits. If you’re due to add to your portfolio in the next 12 months then start getting your finances in order now to determine the equity you have in your existing properties so that you know how much you have to draw on for a new purchase.
3. AM I ON TRACK TO REACH MY RETIREMENT NEEDS?
Make sure your financial plan is on track to meet your retirement needs and includes the timings of when you want to buy more property to build up your asset base. Don’t underestimate what it will cost you to keep your living standards at the same level or better than your current lifestyle as you are likely to spend more in your retirement years, particularly if you want to travel. If you’re not on track to meet your financial goals then it’s better that you realise this sooner rather than later so you can make adjustments now. Small adjustments over 10 or 20 years will make a significant financial difference when it comes to retirement.
4. AM I GETTING THE BEST INTEREST RATE?
Lending institutions are keen to compete for your business and so you should shop around to see if you are really getting the lowest interest rate available in the market. A drop of even 0.25 per cent will save you tens of thousands of dollars over the life of the loan but be sure the conditions of the loan also marry with your future plans. It is advisable to review your interest rate level every one to two years to make sure you’re getting the best deal. You may even find that your current lender is willing to match a competitors’ rate, saving you the hassle of moving, but you’ll never know unless you ask!
5. AM I TAKING ADVANTAGE OF ALL THE TAX DEDUCTIONS I AM LEGALLY ENTITLED TO?
Surprisingly many property investors claim significantly less back from the Tax Office than they are entitled to each year simply because they don’t claim every legitimate deduction. Tax rules and regulations change every year and you need to keep abreast of the current environment. For this reason it pays to invest in a good accountant who can structure your properties tax-effectively and keep you up-to-date on all the latest rulings from the Tax Office.
Patrick Bright is the Director of EPS Property Search. As a buyer’s agent he has purchased over 500 million dollars of real estate for clients and is the best-selling author of four Real Estate books in his “Insider’s Guide” series.