iscover
Atlas Property Group director Lachlan Vidler and senior investment consultant Luke Clifford have discussed the importance of frequent portfolio reviews in a bid to ensure investments are kept in check.
In the busyness of everyday life, investors are encouraged to step back and evaluate their property investments not only for issues, but also for potential opportunities.
Vidler and Clifford broke down how often investors should have their assets reviewed and how they can effectively do so, highlighting separate stages.
Vidler explained that reviews enable investors to determine which stage of the portfolio-building process they are in, whether it is the foundation, acceleration, or retirement stage.
“If you’re not reviewing, you’re not going to understand properly which part of that process you’re at,” he said.
Investors can either be ahead of or behind their investment plan, and reviewing their assets can prove financially advantageous or prevent issues at a later stage.
“You might realise you’re now ready to move on to your acceleration, the acceleration stage, but if you didn’t review, you may end up buying an additional foundational property that you didn’t need,” Vidler said.
"
And that’s going to take up borrowing, it’s going to take up performance, it’s going to potentially then take you longer because you’re moving into the next phase.”
Vidler recommended portfolio reviews be carried out whenever an investor feels it is right, but said he generally tends to do them at least every 12 months.
“The point of 12 months at a minimum is at 12 months, it’s enough time that something should have happened,” he said.
“You can (also) usually just bang it into your tax and you’re going to get a chunk of money back from it.
“It sets you up every year to have a really good feeling about where your portfolio is at.”
According to Vidler, investors should review their portfolio in five stages: a financial review, performance and improvement reviews, an opportunity cost review, and an overall portfolio review.
The financial review primarily covers interest rates, property management rates and depreciation rates, and valuations.
“It’s all of those financial metrics – not about the property, but about the other side of the financial metrics,” Vidler said.
The performance stage encompasses the growth of the property, the type of rent achieved, and whether there is outperformance or underperformance.
Vidler advised investors not only to look at the property itself, but also to compare it to the area in which it is located and other benchmarks.
“You want to go and look at the growth of your property, but you then want to go and compare it to, say, like the area that it’s in, like how is it performing?
“Even the region, how’s it compared to that? How does it then compare, maybe, to the broader state? If it’s all moving in a relatively proportionate fashion, that’s pretty good.”
The next stage, the improvements review, examines what can be done to the property to enhance its investment value, whether that involves a cosmetic upgrade, structural repairs, or adding a granny flat.
“That’s where it’s not about necessarily doing it today, but it’s about always remaining aware and cognisant of what you can do,” Vidler said.
“It really is going to depend on where you’re at in your portfolio because if you have all these different improvements that you could do, that costs money.”
Vidler said the next stage, the opportunity cost review, is essential because it involves thinking ahead and considering the long-term impacts of a decision.
“Often, just want to have movement for the sake of it, and they want to feel like they’re doing something when sometimes doing nothing is actually best,” he said.
“Like, if you’re going to sell a property, are you even going to be able to borrow enough money to buy another property?”
The final stage is the overall portfolio review, which assesses the investor’s progress in the portfolio-building process and identifies any necessary adjustments to the plan.
“That’s really about making smaller tactical level changes, i.e. on a property rather than the whole portfolio level and … that could be something like improvements to the property or it could be like changing numbers, like rates, whatever on your finance,” Vidler concluded.
This article was originally featured in Broker Daily sister brand, Smart Property Investment.