Summertime No Time For Slacking
It’s a perfect time of year to critically review your goals and objectives writes Sandy Richardson.
1 January 2016
The holiday season is traditionally a time when New Zealanders head off outdoors to relax, unwind, soak up the summer sun, and make plans for the year ahead.
If you’re a property investor, it’s also a great time to conduct a regular annual review of your portfolio and investment strategy.
Considering that today’s property portfolio can easily be worth hundreds of thousands if not millions of dollars, and carry a large debt load, it’s worth stepping away from the day-to-day property management issues to set aside some quality time to evaluate, during the holiday break.
There are several levels of review to conduct, so we offer a basic checklist to work through, although every portfolio will be different. At the highest level of consideration, you can apply a couple of business management principles in handling your portfolio.
Goals and objectives: Are yours SMART? Meaning: specific, measurable, achievable, realistic, time-framed? If not, you may need to do some work on whipping them into shape. Writing them down can help.
Productivity: time is money, so apply the business logic of stop/start/continue to your action plan. What should you stop doing, what should you start, and what should you continue? Again, write it down.
Then there’s your property portfolio to consider.
Asset mix: review the locations and types of property (house, town house, apartment, commercial, industrial, etc) in your portfolio. Are these still satisfactory, or do you need to make some changes to the composition, such as to diversify your risks?
Tenants: as with the asset mix, the tenants should be reviewed critically. Are they what you’re really wanting in your property, or is this another area due for a tidy up?
Returns: are the returns, including cash flow, percentage yields and capital growth what you’re expecting and are they good enough? If not, what can be done to drive better performance? What is the market rent for your investment and when was the current rent last reviewed?
Maintenance and other costs: have these been planned and budgeted for and are they under control? Have these costs been stress-tested so you know how much you could stand financially before they became a serious problem for affordability?
Debt financing: is the least-cost debt structure in place? Are mortgage loans arranged in a way that still works in your favour in providing flexibility, paying down debt fast enough and effectively trading off principal versus interest? When are loans coming off fixed terms and is this an opportunity to restructure them and optimise terms and rates?
Tax: is your portfolio structured and managed effectively to keep taxes down to the legal minimum?
Cash management: are your bank accounts and related services set up for best advantage with least effort? For example, text alerts when rent payments are credited to an account, regular bills paid by direct debit, cash accounting packages set up for ease.
Insurances: are you getting value for money and the right types of cover for insuring the risks you’re actually exposed to? Letting insurance policies drift on without regular review can result in unnecessary costs and inadequate cover.
Estate planning: is your will up to date? Are your enduring powers of attorney (property, personal care and welfare) in place and current? If you’re using a family trust, is the minute book being kept properly and are the annual trustee meetings taking place?
Advice: professional advice should be obtained as needed from qualified sources to complete the review.
As you set yourself some property investment goals for 2016, consider extending your own skill-set as a New Year’s resolution. In recent meetings between BNZ small business customers and the Government, education has been a key theme. And a small business is what many property investors' are running.
*Ask Sandy: Email your questions about property investing to [email protected] Sandy Richardson is a national manager at Bank of New Zealand and heads a team of property managers who specialise in residential property investment.