Annual Properties Portfolio Reviews help Maximize Performance
In our opinion, completing an annual review of your property portfolio (no matter the size) is a must-do step for maximising your investment properties portfolio performance. In this article we highlight the elements we consider to be part of an effective annual properties portfolio review.
As an essential component of your comprehensive 3 to 5 year real estate investment plan, your annual review ensures that you’re paying attention to your portfolio and that you’re staying on track with your real estate investing vision and ultimate goal. The results of an annual properties portfolio review will also help you determine if you need to make adjustments to your portfolio.
An effective annual review includes reviewing the following elements of your portfolio:
- Annual mortgage statements
- Cash flow statements: revenue and expenses (including property taxes, management fees, insurance, repairs and maintenance, and vacancies, etc.)
- Trends – year over year performance for each individual property, as well as for your portfolio as a whole.
- Reviewing the conditions of each of the markets in which your properties are located to better understand what is happening there and the real estate trends that could affect your property performance in the short and long term.
An annual review provides the opportunity to:
- Review all your mortgages:
• Ensure they are all update to date.
• Confirm mortgage maturity dates to ensure you are aware of the dates and that the dates are staggered and not renewing all at the same time.
• Review options for new mortgages or re-financing mortgages that are coming to term and analyse what might be the best renewal term for that particular property and for your portfolio, e.g. if you’re thinking of selling you might opt for a short term variable rate mortgage vs. a fixed rate mortgage; if you’re planning on holding on to the property for a longer term then you might opt for a fixed term/fixed rate mortgage. - Optimise your portfolio from a financing perspective; determine if there are potential savings to be realised re your properties mortgages or lines of credit – such savings could improve your cash flow.
- Make cash flow improvements that could enable you to pay off your mortgage debt quicker.
- Consolidate debt, which can improve your cash flow and/or provide the possibility of an equity takeout to be used to acquire more property either through a secured line of credit on one or more of your investment properties or through a HELOC (Home Equity Line of Credit) on your principal residence.
- Review and understand your current portfolio performance: That is, look at where your portfolio is in relation to where you’re trying to get it to; what financing do you have in place and can it still get you to where you want to go financially.
- Determine if it is an appropriate time to:
• Sell and realise some profits on one or more of your properties (such as when a property is at the top of a real estate cycle and unlikely to significantly appreciate further in the next several years, and selling it is consistent with your long-term real estate investing plan), or
• If one, or more, of your properties is under performing compared to your projections with little or no hope of turning around (this may be when it’s time to cut your losses and reinvest elsewhere).
• In either case, you may have an opportunity to redeploy your selling profit to a more profitable and better performing property.
Who should be involved?
- You
- Your specialist team:
• Highview Accountant – regarding portfolio performance from the financial and tax perspectives with respect to staying on track in order to achieve your overall investment goals.
• Mortgage broker – for advice regarding your mortgages as well as the current state of the mortgage market and what options you might consider.
• Real estate advisor – for advice regarding your portfolio overview: how your properties are performing within the context of current real estate markets, and what changes might be expected to happen over the upcoming year or short term.
• Other professionals that complement your skills and the above team members; e.g. if you know you have to do major repairs and renovations to a property you might want to consult with a contractor about the work to be done.
• Having a specialist team is a valid and worthwhile expense with respect to your real estate investment portfolio and achieving your investment plan. The expense of having your team participate in your annual review process should be part of the expenses in your investment plan.
Pros and Cons of an Annual Properties Portfolio Review
Cons:
- There are expenses involved:
• Your time
• Your effort – the work you’ll need to do
• The cost of consultants to support you and complement your skills - No guarantees: It’s almost always a judgement call as to where a particular property is specifically in its real estate cycle and if it’s time to take action such as selling the property or making major repairs/renovations.
Pros:
- You know where you stand financially with your portfolio
- You have the ability to make informed decisions
- You can adjust your real estate investment plan (tweak your portfolio)
- You can save funds, and/or realize better terms and mortgage rates, and/ or reinvest in more valuable or lucrative properties in order to realize a better return on your investment properties
- You can keep your plan on track and realize your investment goals (e.g. net worth, retirement income)
In closing, in many ways real estate investing is like flying a plane: you get to your destination, but there are numerous course corrections along the way – it’s not a single straight line from A to B. Looking at your portfolio each year, through your annual review, will help you stay on course while providing the information you need to make course corrections along the way. And flying blind is never a good idea, right!?
Talk to your Accountant at Highview today to get the steps in motion for your annual review. Together we can chart your portfolio’s progress, introduce you to our trusted specialists as required (including trusted property experts who have the capacity to introduce our clients to property opportunities before they hit the open real estate market!), and assist you in setting the trigger date for your next property purchase.