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Tips on reviewing your property portfolio
As year-end approaches, think about tasks you need to carry out now to keep your investment ticking along nicely. Margaret Lomas reports
‘‘You don’t need to be lucky, smart or rich – just buy and hold. The biggest barriers are lack of knowledge, lack of time and the social environment you’re in’’
With our lives following an ever increasingly busy pathway, the temptation to sit back and let it happen in regard to our property portfolio is a hard one to overcome. While everything seems to be going smoothly, there’s no point in upsetting the balance, right?
Wrong. Once a year all prudent investors should pull out the investment scrapbook, clean off the dust and ensure that everything is as it should be. Here are a few tips as to what you need to be doing, right now.
Firstly, make a list of when your leases are coming up for renewal, and schedule in your diary a phone call to your property managers for one month prior. The next two years are going to herald a period of exceptional rental growth, and now is not the time to leave it to your manager to decide when to increase rents. Remember, a rental increase of HK$70 a week is only worth a few cents to your manager, and so it is not as important to him as it is to you.
For those properties where you are allowed to have an inspection every six months included in your management fee, make sure one has recently been done and, if not, order one. Then, consider the resulting report and the suggested work required in terms of its ability to increase your income. For example, the request for a state-of-the-art air-conditioner may not be urgent and may not result in extra rent, whereas a paint job and new carpets may increase rental returns by up to HK$140 a week.
Next, review the performance of your property manager. Have you experienced many vacancy periods lately, and how long have they lasted? How well do you and your manager communicate? Has he been pro-active in suggesting rental increases? Does he attend to requests for maintenance in a timely fashion? If not, maybe it is time to terminate and try a new manager.
What is the current value of your property? Even during the downturn, some areas will have increased in value. I recently had seven of my lowest price properties re-valued. I had owned them between two and three years and paid less than HK$800,000 for each of them. Even though the past 12 months have apparently been very slow in terms of growth, I found I had an additional HK$2 million of value across these seven properties. This allowed me to buy another, just before prices began to escalate. Examine your own portfolio to see if you have enough equity increase to add to it.
Ensure that you will be in a position to start the next financial year more organised than you were last year. The more properties you acquire, the harder it gets to track the financial details of each of them, and the more costly it is to have your accountant sort through the mess at tax time. Aim to start 2010 with an organised approach to your property accounting so that you can simply hand over spreadsheets with full details when tax time rolls around again.
And don’t forget your personal financial housekeeping. The coming few years will bring a rocky roller-coaster ride from an economic perspective and you can expect some interest rate instability. Now is the time for you to get really serious – if you want to invest today (which is probably the best time I have ever seen to buy property), then you will have to make sacrifices to do so. Look at your spending and cut where you can. Pay extra money into your loans and if rates drop, keep your repayments high so that you can gain equity, sooner.
Looking at the bigger picture, now is also the time to review your personal mindset. After all, the biggest part of being a successful property investor is having the right mentality. “You don’t need to be lucky, smart or rich – just buy and hold. The biggest barriers are lack of knowledge, lack of time and the social environment you’re in,” says Justin Wang, managing director of The Property Investors Alliance.
Firstly then, take some time to refresh your knowledge of the market. “The professional property investor is very well read,” notes Bernard Salt, demographer with KPMG. “They read everything from statistical articles to newspapers and books. Their mindset almost gets to an obsession stage. They have spreadsheets and files and they know who the commentators are when they want to ask questions. They follow properties and regions over a period of time and almost treat it like a second job.”
Salt says the psychology used by successful property investors is almost a scientific process, where rationalisation, research and veracious reading determine the final decision. So remind yourself not to allow psychology – in the ‘emotional’ sense – to come into your decision making. “A professional property investor is cool, rational, even quite brutal in the way they view their investments. A lot of property investors say that they make the money on the purchase rather than the sale. So, having a cool head and making rational decisions and not being swayed by emotions is very important,” Salt explains.
“A non-professional will go for a drive up the coast, fall in love with a place and then rationalise after why it is a good investment. Whereas for the professional it’s all about business,” Salt adds.
Anyone who is in possession of a property portfolio, no matter how small, will already have dealt with the innate or inherited fear of accumulating debt. But if you are currently feeling insecure about your decision to invest in property, make the effort to surround yourself with like-minded investors. By mixing with risk-takers and successful property investors, you can expand your knowledge bank and open your mind to the opportunities – instead of the risks. This is especially important if the people in your immediate circle are wary of property investing, and who have disempowering beliefs such as ‘we can’t afford it’ or ‘rich people are greedy’.
Keeping your mind free of such disempowering beliefs can take some reinforcing. Old habits die hard, and your subconscious conditioning can lead you back to the less risky decisions and therefore an outcome with less benefit. All property investors need someone to help them get over this, so if you feel you need a boost – find yourself a mentor.
The benefit of having a mentor is that you can learn from their mistakes and triumphs in the property investor market. Your mentor can introduce you to his trusted contacts and help you grow your knowledge and psychology as an investor. Look out then for someone who can help you move forward and mix with people who are positive, and who will remind you to focus on the big picture rather than small.
Warren Buffet says that true wealth comes from the transference of funds from the impatient to the patient. Pay attention to your current portfolio, work on building it by adding more properties during the tough times, stay positive, be patient, and you will most definitely prosper over the long term.
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