Expert Advice with Philippe Brach 06/07/2016
After working in the finance industry for almost three decades, I’ve come to learn that one investment strategy is far more dangerous than the rest.
I’m talking about a very common strategy that most investors accidentally adopt: the classic ‘set and forget’.
This happens when investors buy an investment property, place a tenant inside it… And then all but forget that the property exists.
They might pay the rates every six months and glance over the property report when a lease is renewed. But as far as the property’s growth and performance goes, they often fail to check in – which could leave them with a property that isn’t moving them towards their goals in the slightest.
Get your head in the game
Consider your own investment portfolio: when was the last time you reviewed the performance of your current properties?
Have they increased in value as you anticipated? Are you experiencing many vacancies? And has the rental return increased over the years? What is your cash flow like?
If you don’t know the answers to these questions then it’s time to do some serious research. It’s so important to review your assets on a regular basis because it's the only way to make sure your investments are doing their part to move you forward financially.
Following are a few suggestions of subtle yet significant actions every investor can take to keep an eye on their investments’ performance:
1. Schedule an annual property ‘health check’
Here’s a fun fact: every single property I’ve bought in Australia, I still own. I’ll admit that if I had my time again, I may not have bought some of the assets in my portfolio, but as it stands today none of them are performing badly to the point that I would choose to offload them.
How do I know this? Because I review all of my properties on a regular basis. I conduct regular rental analyses, cash flow reviews, I investigate recent comparable sales, and I check to see what (if any) new developments are happening in the area. This helps me to stay on top of my investments, so I don’t wake up one day and suddenly discover that one of my properties is a drag on my finances.
2. Review your mortgage every 12 months
At Multifocus Properties & Finance, we check in with our clients at least every 12 months. This is so important, even if you’re not planning to buy any new properties or refinance any mortgages, because the loan market is continually changing. There are always new products, new policies and new criteria to be aware of, which could be leveraged to improve your financial situation.
For instance just this month, I helped a client save some money. He had three investment properties and one of his loans was due to convert from an interest only mortgage to a principal and interest mortgage. Bank assess P&I loans as being lower risk so I called his lender, and we negotiated a rate discount of 0.15% – saving my client $825 per year. That’s not a bad result for simply making one phone call!
3. Have clear risk management strategies in place
Property is quite a forgiving asset, in that time in the market will almost always help you overcome any dips in market conditions. But if you have to sell a property at a particular time, and it just so happens that the market is going through a downturn, you could stand to lose a lot of money.
For this reason, it’s essential that you have several management or exit strategies prepared to help you avoid becoming a ‘distressed seller’.
It may as simple as having a renovation strategy pre-funded and ready to execute, to help you improve a property’s appeal and therefore its rental return. Or, it could be a financial strategy to have a buffer in place to help you withstand unexpected dips in your cash flow.
Being prepared to deal with unexpected financial issues is something we recommend for every investor, as it means you’ll be well equipped to handle any curveball thrown your way. By smartly managing your investments, you can maximise both your profits and your peace of mind.
Philippe Brach is CEO of Multifocus Properties and Finance
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property
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