Optimizing your property investment portfolio

Optimizing the performance of your property investment portfolio will be a key component for any investor looking to maximise the return on their investments. Optimization can be done using a range of strategies depending on the type of property(s) you have and the desired outcome you are trying to achieve. The common denominator will be either improved performance of the asset – be it capital growth, manufactured equity, or additional income – or improving the structure of your loans.

Your loans can always be reassessed at and, depending on the type of loan, you can rework your servicing to maximise your borrowing capacity and cash flow in relation to interest cost.

Historically, property has proven to be a great asset for capital growth over time, and the compounding growth effects of this can be quite phenomenal. Anything you can do as an investor to assist this process will reward you well, and, in most cases, the longer you hold the asset the greater the reward. However, short term, if you can minimise holding costs and maximise rental income, the better you can handle any changes in your lifestyle (from change of job, to more children, etc.)

Value adding to a property is a great way to fast track the performance of a property. This can be done in many ways; they include increasing the use of the property by sub-dividing the land, obtaining development approval for multiple dwellings, as well as making improvements to the existing dwelling to increase its value and appeal. Quite often, any of these options can quickly increase the value of your property, which will improve the compounding growth of your property as well as provide equity that can be potentially used for future investment opportunities.

As well as increasing the value of your property, optimization will also come from implementing strategies to increase the cash flow from your property(s). This can certainly be achieved by reviewing your loan structure as mentioned. It can also be done (as mentioned above) by developing the property and renovating it: more properties on the site means more rent, and a more appealing property will most certainly result in higher rent. There are also cash flow specific strategies that investors can utilise, like offering the property up on a rent-to-buy scheme or vendor finance contracts. This will be discussed in greater detail at a later stage. These types of strategies will generate a much larger weekly return on the property, but the trade off to this will be relinquishing the right to much of the capital growth in the property over time.

Plan to Succeed

What is research and due diligence? Everyone seems to have an answer to this question.

Many investors are drawn towards innuendo, media hype, and listening to friends, family, and back yard experts. Everyone has an opinion. The real issue, which inadvertently leads to failure, lies in not undertaking proper research. Some people kid themselves into believing that just reading a glossy brochure about some ‘house and land’ package or ‘off the plan’ project is sufficient, and that the salesperson is possibly believable and trustworthy. I strongly beg to differ!

There is no real rulebook out there.

Here are some respectable and risk-reducing considerations that should make your job easier in finding an outperforming location, which reinforces why it is important to seek objective advice.

I believe advice is only objective if it serves the person being provided the advice. It should have nothing to do with any vested interests the advice provider has. It has nothing to do with the belief system, attitude, or religion, of the person who is providing the advice.

The advisor cannot be engaged by the vendor. Preferably, they should not directly communicate with the vendor. They should not have a contract contracting them to market-specific projects, or have targets or (key performance indicators) KPIs to achieve for anyone.

Objective advice should be based on facts and figures, and reliable information – unbiased information. This goes for information provided to the investor, and the information the investor is basing their own decision on, as well. Often property investors can fall into the trap of using their own emotion, beliefs, attitude, and experiences to base decisions on, such as where to buy and what to buy, and the inclusions in the property itself.

Every decision I make is based on what I have learned, discovered, or researched, and this will assist in calculating the potential of the location and property to make more money. What I personally prefer has no relevance compared to what the area suggests I need, in reference to the type of dwelling in the area that I should purchase. What the demographic wants, and what I should be spending for the type of property in the given type of area, is what’s important.

Components of Research

Let’s start with the reality of the situation with any property. There is no guarantee.

There is no magic wand. Some sell answers to what they call ‘secrets’. There are no secrets. However, if you don’t do your research you are planning to fail. By researching you are, in effect, reducing your risk by eliminating some very obvious negatives that could be associated with an area. This serves to reduce your chances of failing, and therefore increase your chances of success.

‘If anyone presents themselves as a holder of “secrets” in real estate, run away. Don’t look back. Anyone promising to reveal secrets in the property business is, by definition, a spruiker.’

– T Ryder

Andrew Crossley

This is an extract from a chapter in the book Property Investment Australia. Available from Mithra Publishing.

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