9 gems for your property portfolio
With the year drawing to a close, and Christmas now only weeks away, it’s time to reflect and consider some important points to help you along your property journey. I’ve been reviewing my books for reprint, and found some of these gems below to help you on your way:
1) Understand that property will provide a different return for you than other asset classes. In the end you are looking for cash flow to keep you in the market, and growth to get you out! Learn how to calculate property returns and establish the true return on any property, which is a combination of the rent return and the yearly growth.
2) The debate between cash flow investors and growth investors will rage eternally, but it’s largely baseless. I get callers on my show saying ‘I’d like to find a property which will have capital growth’. Of course they do! No one ever says ‘I’d like to find property which won’t grow! Growth and cash flow are equally important, and it’s simply not true that you have to forego one to get the other. Failure to consider cash flow can lead to an inability to stay in the market, just as failure to consider growth leads to an inability to create a strong net worth position.
3) Once you have put together a portfolio of properties, your work does not end. Your portfolio must be managed on an ongoing basis. Monitor your properties individually and your portfolio as a whole to be sure that it continues to meet your goals. Identify when a property has served its purpose and establish those properties which may need early liquidation. Be sure that eventual liquidation of your portfolio is managed to occur at a time most financially viable in terms of income and tax.
4) Don’t be afraid to set an upper limit which sits comfortably for you in terms of price. You do not have to spend a large amount of money on each purchase to obtain properties which will perform well for you. More important is your own comfort and willingness to continue to increase the number of properties you hold. There’s also no truth in the rumour that the more you pay for a property the better it performs – in fact the reverse can be true.
5) Successful property investing will only occur where the choosing of property has been carried out diligently. You have a responsibility to ensure you carry out your own research and increase the chance of successful investing. Know the questions to ask when buying any property and be sure they are asked of the right people. Explore any management arrangements and fully understand any agreements which may be attached to property. Research the area and the future plans of council. Know the population movements and the extent of demand for rentals and sales. At all times maintain a commercial approach to your investing—there is no place for emotions in this process.
6) Become smarter than your accountant when it comes to accessing your tax benefits. Use the tax benefits to help you minimise debt as quickly as you can, so that periods of slow capital gain will not impact so heavily on you. Remember that you are personally responsible for the preparation of your own tax return—even when you use a professional to assist you.
7) Be careful when you use any unusual or comprehensive purchasing structure. If your property investment involves a ‘buy and hold’ strategy, you cannot afford to put in place a structure which will not remain efficient for the term of your investment. Project ahead ten or twenty years and do the sums to be sure that any structure you choose continues to work for you.
8) Just because you choose to have a professional agent manage your property does not absolve you of your responsibility as a landlord. You remain responsible at all times and severe penalties can be applied if you do not carry out these responsibilities with care. Know what the state in which your property is situated will require of you, by visiting Fair Trading and Real Estate Institute websites. Be sure that your landlord’s insurance policy is adequate and current.
9) Be careful of undertaking any risky strategies which may be suggested at high priced seminars or by rags-to-riches gurus. There really is no such thing as a free lunch and most of these strategies may well have a very steep downside.