It is astonishing to me that so many investors talk about how man properties they own rather than how well their portfolios are performing. This kind of autopilot investing without context can be detrimental. The coming holiday season is as good as any for you to give your portfolio a much needed health check simply because sometimes in life, more is not necessary better. Here are some questions to get you started:
1. What is your overall investment goal?
Why are you investing in properties in the first place? Are you investing for cash-flow or capital gain? Are you investing for a better quality of life in five years? Ten years? Or twenty years? Without knowing clearly where you are heading any investment strategy would be haphazard at best. Reaffirming your overall financial goal can help you visualise where you are at and how your portfolio is performing for you.
2. What positive steps can you make to attain this goal?
Review your portfolio activities in the last 12 months. Have you bought any new properties? Have you added value by renovating or developing? Do you action strict rent arrear and rent increase protocols to maximise your cash return on each property? I will always remember Kesh Maharaj telling a room full of APIA investors how income from property investment is anything but passive. Truly successful investors are anything but stagnant. Consider this a performance review of yourself as and investor and work out which areas you can improve on in the coming year.
3. How well do you know your properties?
No really. How well do you know your properties? When is the last time you did a property inspection? Do you know the current market value of your portfolio? Given the strong performance of the Auckland property market in the last 12 months, it is time to think about how you can accelerate your portfolio growth. Consider getting a valuation report done to make use of the additional equity.
4. Which are the stars and which are the slackers?
Now that you have a clear direction for your investment strategies and got to know your properties, it is time to look critically at each and every single one of your properties. Which ones are propelling you towards your ultimate financial goal and which ones are holding you back? Are any of your properties suffering from persistent high vacancy? Giving you a poor cash flow or uninspiring capital growth? These are your under-performers. Start building a strategy to either sell these properties or make changes to them to improve their performance. The APIA 10 Year Wealth Projection Calculator is a good starting point.
5. How compatible is your portfolio to your lifestyle?
We all go through various changes in life and your property portfolio can either add to or take away from your current and upcoming lifestyle. When you started investing, you may had been single, footloose and fancy-free. The investment strategy and portfolio style that suited you then would not necessarily be the best for you current lifestyle as a father of two with a third baby on the way. You have have changed jobs or combined your finances with a new partner. All of these changes have implications to your savings and disposable income capacity not to mention your cash reserve to remain active on the property market.
Additionally changing circumstances in your life may also require a reexamination of the way your portfolio is structured. To stay on top of maximising tax savings, book an appointment with your accountant in the new year to discuss changes in your life.
6. Is it time for some TLC?
Regular maintenance, repairs, and even moderate renovations are vitally important for your property to command a high rental return. While these works are easy to keep on top of when the property is being managed full time, for many part-time landlords, they can slowly build up into an insurmountable mess. Schedule in a property inspection during the Christmas downtime and take stock of what needs to be repaired or maintained.
7. Are you paying too much?
Without a doubt financing constitutes the highest costs faced by most property investors. Now that we are three months away from the end of the financial year, examine your existing mortgages closely and look for ways to save on interest costs. Have you utilised your 0.25% off home loan interest discount
with the ANZ? Have you been make the most of your relationships with the banks? Is it time to consolidate or refinance?
8. Do you have a safety net to fall back on?
Once you have made real in-roads into various cost savings, take a look at your risk mitigation strategies and consider ways to increase your security. Kevin Green at the 2014 NZPIF Conference talked about not holding onto debt for longer than 10 years as a way to continue building his portfolio in a sustainable manner. Additionally you may also want to consider life or income protection insurance to guarantee your current lifestyle despite change in circumstances.
9. Are you renting to the best people out there?
You can do everything right and tick all the boxes when it comes to property investment, but all of your hard work will come to naught if you rent to the wrong people. At his latest presentation to APIA investors, Craeg Williams from TPS Credit Control talked about there being $100 million a year of rent arrear disputes adjudicated by the Tenancy Tribunal, 'and that is just the amount we know about.' said the specialist tenancy debt collector. Take a look at your tenants' performances in the last 12 months. Do they pay rent on time? Do they look after your properties? Review your tenancy agreements and use this opportunity in the summer to consider whether you are better off renting to a bad performing tenant or go back to the market to look for better tenants.
10. Are you up-to-date?
Property investment does not happen in isolation nor should property investors be ignorant of topical issues and likely policy changes that will have impacts on your portfolios. In this rapidly changing market, knowledge is quite literally gold. "The best way to stay connected with the industry is to stay connected." says Andrew Bruce, APIA President, "Networking with fellow investors and tuning in to industry presentations are the best way to stay current." If attending events is not your bag, just know that property information is also readily available online and in print.
These questions provide a good foundation for you to get a true appreciation of how well you have been investing so far. Once you understand where you are at and map out the steps to get you to where you want to be, you will be on track for a truly rewarding 2015!
Will you be doing a portfolio health check this summer?