As another tax year closes, it is often the main time for people who run a property portfolio to see how it is really performing. This can be an eye-opening exercise. It can often be a wake-up call to look at our property businesses in more detail and see exactly how they are working, both individually and collectively if we have more than one.
Whether you own one or two properties, or a decent sized portfolio, it is important to run them on the basis of owning a business and not just see them as an investment for the future. Running your properties this way will enable you to keep an eye on your all-important 'bottom line' throughout the year, rather than just seeing how your property/ies have performed at the end of a financial year.
Why is this so important?
As with any business, if you do not have enough cash flow coming through, then you could be asking for trouble. Being able to mitigate yourself against any unexpected repairs, voids or hikes in the interest rate will serve you well. Factoring in these potential costs from the beginning by making sure your property is giving you enough monthly profit is essential. This is really the only way you can ensure sustainability as time goes on.
The ‘problem’ with looking at property from a traditional investment point of view is that:
Why is this so important?
As with any business, if you do not have enough cash flow coming through, then you could be asking for trouble. Being able to mitigate yourself against any unexpected repairs, voids or hikes in the interest rate will serve you well. Factoring in these potential costs from the beginning by making sure your property is giving you enough monthly profit is essential. This is really the only way you can ensure sustainability as time goes on.
The ‘problem’ with looking at property from a traditional investment point of view is that:
- Your money can get ‘stuck’ in deposits and other costs
- You look only at the yield, not the TRR (True Rate of Return) (i.e. net cash flow as against money put into the deal)
- You are at the mercy of market conditions – reliant on the market rising
- Interest rate rises could put you into negative cash flow
- Most people buy at full or near Market Value
- No real clue of property condition
- Factor in margins from the outset (both in terms of capital increase as well as cash flow)
- Buy ‘wholesale’ and refinance or sell for ‘retail’
- Put systems in place
- Keep an eye on profit and loss
- Plan maintenance as a prevention – not a cure
- Make it easier to scale
- Build the right team to help you