Just a question for the community in regards to review of properties. Have a smaller portfolio, 2 Investment Properties and was wondering what do people do in regards to review of the properties, I.e Capital Growth performance and within scope of expectation My planning is a long term Buy and Hold and provide a income in time but just trying to understand what people do- at what point do you decide(have one of my purchases been a Dud) In time will purchase further properties - probably 2 more just have the challenge of two young kids and the pressure that puts on Surplus Cash flow (wouldn’t change if for the world though LOL)
I look at 2 main things during my review: 1. Capital Growth - if I'm looking to purchase more property, what's the projected value of my IPs at the moment? Given strategy is B&H, are there any chances I can pull equity from IPs to supplement use of my cash as deposit for the next property? 2. Cashflow - ongoing portfolio cashflow review, how much does it cost me to hold these IPs? What can I do to improve on the overall cashflow or build up an even bigger buffer fund sitting in the offset? Then decide what my next IP should be - a more blue chip or more cashflow IP to balance out the portfolio. If one of your purchase is a dud, is that because the role of this IP is different to your expectations? i.e. you expect it to be a CG property but it's not growing as per your expectation. Then next thing is what's the likelihood growth prospect of it - work through your DD again on the area and see whether you're convinced that it will continue to grow in the next couple of years? Cheers, David
Thanks David, great info and will use to review my portfolio which has included so far in refinancing out of WBC and Liberty to CBA on all loans Significant saving especially on my PPOR Enjoying the podcast
Hi Tobytom The things we have previously looked at are: 1) Supply of similar type of properties in the area - for example if you own a unit, what is the supply like. Oversupply will suppress value of your unit. On the other hand, there could be lack of supply for a particular type/size of property e.g. a 2 bed room villa vs the area mainly has 3 bedroom villas. In this event, there will be lack of comparables, and there may be lack of demand for this particular type of property. 2) Look at the growth that HAS or HAS NOT yet happened, and upcoming new construction. If the area/region hasn't seen growth, when was the last time it had its peak (check RP data / Price Finder resources), then determine whether you may be letting go of a property too soon? Some people may sell out as they haven't yet seen the growth. This could mean you will miss out of upcoming growth. 3) Consider the rental return - linked into supply and demand too. Is the rent likely to stay low due to oversupply. Oversupply has an impact on growth and rental returns. Hope this helps.
Awesome information. Really appreciate your time in responding. Have purchased two properties in Qld, one in Maroochydoore (higher yield) to help with Cash Flow and servicing but still seems to be growth drivers at Play and one in Brisbane (7kms from Brisbane CBD) Ive only held them for 18months and 2 years so definitely not panicking just want to review the purchases and ensure I haven't made a bad mistake (lost opportunity cost). Thanks so much again
I'd suggest it's way too soon to even review them It'd be awesome to buy right before a boom, but in reality it can be well over 5 years before you see anything worth getting excited about! If your goal is buy and hold, hold. When you buy for CG with a 25 (or so) year time frame, it's counter-productive to look at every little wiggle and will just encourage you to churn your portfolio. This will result in crap returns over all, especially when you consider the transaction cost of property! Reviews are more important for cash-flow properties - if they're costing you too much, they're not doing what they're supposed to and it can become obvious very quickly. Usually, this will be due to poor DD before purchase - for eg, not doing a thorough inspection before purchase, not getting a good idea of vacancy rates, or not getting a good idea of the locality and the types of tenants in the area.
Spot on Jess. We talk about property appreciating in value, and while this is true - property actually appreciates rapidly in a cluster of just a few years, and otherwise just moves sideways. So if you review your property too frequently and get too impatient, you might miss those cluster of appreciating years. The only curve-ball I would add: when you are reviewing your properties, remember why you purchased each one and what role it plays in your portfolio. So don't buy a high yielding property in a secondary area and complain that it is not growing - because in this example, the purpose of this property is to provide yield and not capital growth. Applying growth benchmarks against a cash flow property might not be a fair assessment. So when you are measuring the performance of the property, keep in mind it's intended purpose.
I've never understood the reasoning behind selling a property because it is underperforming for growth. If a property has been underperforming growth wise its probably getting closer to the time when it plays catch up which usually occurs in a short burst as already pointed out. A property that has been performing well is probably closer to the stage of flat/sideways or even negative growth stage of the cycle. As long as the underperforming property still stacks up fundamentally then let time do its work and resist expensive meddling . There's no guarantee your replacement purchase is going to experience an instant boom. Willy
