One of the many mistakes that new property investors often make is to adopt a “set and forget” mindset.
What usually happens is they buy an investment property, appoint a property manager, and then, well, do nothing.
Before long, their property is rented for less than it should be, or perhaps they decide to sell it because it’s “costing too much money” to hold.
These reasons are why we always recommend doing an annual property portfolio review so you can gain a clear picture of how it is really performing, including considering these five elements.
1. Understanding cash flow
Many beginner property investors don’t understand their true cash flow positions.
At the start of owning one or two investment properties, they may be getting frustrated with having to pay council rates or owners corporation fees out of their own funds.
Soon enough, they start thinking that the properties are too negative cash flow for their liking and are considering throwing in the towel and listing them for sale.
However, it’s vital that you consider the totality of your cash flow annually, which includes any tax refunds, or tax reductions, after the end of each financial year.
For example, a property might turn from cash flow negative to neutral or positive cash flow when your annual tax position is taken into consideration.
Claiming depreciation can also make a big difference to your annual cash flow situation.
Also, it’s imperative that if you do receive a tax refund because of the ownership of investment properties, then those funds should be allocated to your portfolio – and not spent on a holiday or a new vehicle.
2. Assessing rents
Every property investor wants a long-term tenant who looks after their property well.
Sometimes, though, this can result in landlord’s not ensuring that the property’s rent stays in-line with current market conditions.
Don’t get me wrong, long-term tenants should be rewarded, but not to the point where the rent they pay is 10 or 20 per cent behind what a new tenant would.
That’s why it’s important to speak with your property manager each year to assess each property’s market rent.
Of course, the ideal time for this is before every lease renewal.
Ensuring that rents are in-line with the market will help your cash flow, because most property expenses generally don’t go down each year!
3. Building and pest inspections
Most property owners conduct a building and pest report before they purchase an asset and then rarely do it again.
We recommend having a pest inspection every year so you can keep on top of any issues as well as ensure there are no nasties, like termites, starting to live at the property, too.
Every three or five years, we also suggest a full building inspection on each of your investment properties.
This will ascertain whether there are any maintenance issues that need addressing before they become big problems.
Likewise, having a professional building report will also identify any structural problems that a property manager may not pick up on during their regular inspections.
At the end of the day, you want every one of your properties to be in the best shape possible to underpin its rentability but also its capital growth potential.
4. Can you add value?
Every year, it’s also a good idea as part of your property portfolio review, to consider whether you can add value to your portfolio.
This can include such things as painting or perhaps some new cabinetry in a bathroom that is looking a bit tired.
Over the course of long-term property investment, you will need to upgrade your holdings, so they continue to be in-demand from tenants.
That’s because properties do age and their fixtures and fittings go out of fashion.
By assessing what could be done every year, it will enable you to regularly make small upgrades to the property rather than have the expense of a major renovation happen all at once.
5. Expert assistance
One of the services that we provide our clients is a thorough assessment of their portfolios each year.
As well as the above, we assess capital growth over the past year to learn whether there is any equity that can be extracted.
This equity could then be used to, perhaps, buy another investment property or to create a financial buffer for their portfolio.
We also assess whether there are better home loan rates available that could change the overall cash flow position of the portfolio by refinancing to another lender.
By professionally doing a property portfolio review every year, investors always gain a much more detailed understanding of how their investment properties are performing – and what can be done to amplify their results even further.
Book in a time with our team to see how we can help you build your property portfolio here.