Running your property portfolio with the strict hand of a business owner is the best way to ensure success.
Unlike investing in stocks you don’t want to just leave your property, keeping a wary eye on the marketplace for the right time to dissolve assets and make maximum profits.
Running a rental property is a much more certain way to generate a steady stream of income, and it comes with the benefits of owning a tangible asset that - barring an unforeseeable disaster will retain its value, hopefully increasing in time.
Properties though, cost money to run. Why else would a large number of great victorian estates be left empty in the English countryside? There are upkeep fees, heating, repairs and ground maintenance, property tax.
So, you are going to want to put it to work. This involves management fees, listing and marketing expenses, and perhaps most importantly your time. It may not be a lot of time, but as you get more properties in your portfolio it can begin to add up.
First, you have to change how you think about your property investment. If you don’t seriously consider this as a business venture you leave yourself open to plenty of potential issues that will increase your risk and could end up costing you a fair amount of money down the line.
You need to get serious about your goals and decisions.
By this we mean approach each decision based on research and evidence, not on emotion. Do plenty of market research and thoroughly research your costs and expenses.
Consider the ongoing maintenance costs, the types of tenants you want to attract and what the local rental market is like.
Be prepared to walk away if the numbers don’t add up, or if the property doesn’t match your criteria. If a property in your portfolio is not stacking up, don’t be afraid to sell and replace it with one that will perform for you.
Creating a solid investment plan and sticking to it is a good way to minimize the risk associated with property investment.
Related Article: Setting Goals: How to Succeed as a Real Estate Entrepreneur
As yourself the following questions:
Property requires an ongoing management process. Some people choose to pass all control to property management firms, but these can be expensive and eat into your profits.
Related Article: The Benefits of Software and Automation in Property Management
There are a fair few solutions online though these days including some very reasonably priced Property Management Apps like Landlord Studio which will help you keep track of expenses and payments and help give a clear overview of your property portfolio.
At regular intervals throughout the year, you will want to sit down and review the progress of your investments. What’s working and what’s not working? Are your rents and mortgage in line with the current market? Don’t forget about landlord insurance - are you paying a competitive premium, and do you have the right level or type of insurance?
Set up folders, whether these are arch lever or just folders in your computer - keeping all your documents sorted and organized is the first step. Further divide these folders into sections such as contract particulars, cost base items, bank statements, yearly expenses, rental statements, lease agreements, etc.
Going digital has a number of advantages, not least of all is the space you will save in physical folders. Digital communications are instant and readily editable. Organization is easier on a computer, and you’ll save a few trees along the way as an added bonus.
What you don’t want to happen at the end of the year is to end up flipping through your personal bank account statements tallying up relevant income and expenses.
Keeping your accounts separate will make life a whole lot easier.
On top of this, you can then easily pay any property expenses or fees from these accounts - such as maintenance fees, insurance - this will help manage your funds as well as make working out your profits as well calculating at taxes at that time of the year so much easier.
Keep track of the money in a spreadsheet or - if you’re using an App like Landlord Studio - in your property management software.
It is important to identify what expenses go on the cost base of the property to reduce your future capital gains tax liability, and maximize what can be claimed in your yearly return.
Set up a basic bookkeeping account with someone like Xero and feed your bank statements and loan account information into the accounting software. This will automatically recognize entries, for easy reconciliation and tax preparation.
In a low-interest rate environment, you may find your investment has positive cash flow after the yearly tax deductions of expenses and depreciation. However, you may find the holding costs throughout the year are negative, and would, therefore, need a buffer to maintain the investment before your yearly tax return.
Generally, we advise keeping two to three years’ worth of holding costs as a buffer, which can drip-feed the shortfall over the year and then be replaced with your tax return. Alternatively, you can ask your accountant for a tax withholding variation form, to adjust your week-to-week tax to reflect your allowances for owning the investment and receive the return immediately in your pay cycle. Some find this helps with cash flow throughout the year – but you must be more diligent not to spend it!
We hope you found this blog interesting! However, do note that it should not be used as a substitute for competent legal and/or other advice from a licensed professional.
As the property owner, you’re responsible for non-compliance with snow removal ordinances, so it’s best if you make sure snow removal equipment is available. You may even find if you check the local bylaws that you are required to keep public thoroughfares that cross our property free from snow too...