Part 4. How to treat property investments like a business - Management
This is part 4 in our series on How to treat your real estate investments like a business.
Step 7. Keep your investments in good condition.
Skimping on maintenance might save a little bit of money in the short term but this has a way to come back around. Problems build up and when left unchecked will almost always cost you more in the long run. Even when they don't, no one wants to live in a run down property and they definitely wont want to pay a premium for it.
Staying on top of maintenance items and property upkeep will ensure your property gets you top dollar. I also strongly encourage you to engage professionals to carry out maintenance on your property. Australia loves a good DIY effort but unless you're a professional tradesperson, keep this for your own home on the weekends and don’t subject your tenants to it. Doing things yourself might make you think you're saving money but people can spot a poor repair job a mile away as these start to build up, your property, and it's performance will quickly start to deteriorate.
Step 8. Review regularly
One problem that I'm particularly passionate about, yet see again and again is investors who after they've bought their property, basically just set it aside and never check in to see how it's actually performing. There are very few businesses around where you can ignore the business and expect them to succeed, yet some investors think it's perfectly fine to do this with their asset. There are two main areas for review, your cashflow and your growth. Don't be put off if this sounds complicated, the ByPass Investor platforms provide tools which really simplify things and make it easy to identify the important information you'll need to make informed desicions.
Cashflow:
Reviewing your past cashflow and projecting future cashflow is essential to identify and plan for any hurdles you're likely to face. Cashflow doesn't occur evenly throughout the year, you'll have some months where expenses like rates and body corporate will impact your income and so it's a good idea to know when these will occur and plan for them. Other events that impact your cashflow include a tenant moving out causing a vacancy period, or the need for an urgent repair. For these you'll want to make sure you have a financial buffer in place to cover the shortfall. I'd suggest reviewing your properties cashflow forecasts at least twice a year so that you can budget appropriately.
Growth:
Tracking your properties performance over the long run is essential. We recommend reviewing your properties performance every 6 months to understand whether it's performing as you expected or whether it’s lagging behind the market. Identifying underperforming assets early on allows you to make adjustments and get back on track. This may mean selling an under performing asset, reviewing the target market for that property, or making changes through a renovation or development project to manufacture some growth and align the property with what the market is looking for. Property markets can be seasonal so I set calendar events on the same day twice a year to remind me to review my portfolios performance. This ensures I'm comparing apples with apples when looking over performance metrics.
Step 9. Maximise your returns
Reviewing your portfolios performance regularly also gives you the ability to identify the available equity in your portfolio. Additional equity leads to the ability to expand your portfolio which then tends to lead to even more equity. It's this compound effect that makes property investing such a good wealth building tool.
Equity is the difference between your properties value and any outstanding debt you have against it. As the value of property increases and as you pay down your loans, the amount of equity you have available will increase. You can then use some of this equity as security for your next property purchase. The earlier you can identify this the sooner you can take advantage of it by expanding your portfolio.