Each year it is good idea to review the performance of your existing property portfolio, here’s how.
Ryan: The end of the year is a great time to review the performance of your portfolio and to see how your properties are doing, how they could be doing better, you could save money here, and also to help you plan for the next year. So in this time, at December, at the end of the year, I’ve got with me Ben from [Pumped On 00:00:17] Property, buyers agent and investor extraordinaire. How’s it going Ben?
Ben: Phew! Psyched to be here, in holiday mode already.
Ryan: Yeah, so we are, like as we’re recording this, it’s kind of like mid-December, so we’re leading up to the end of the year. Ben has just done a review on his portfolio and we thought it would be helpful to talk to you guys about how to go about reviewing your portfolio, because this is something you should be doing on a regular basis to ensure that it’s going as well as you would like.
And to also like prepare you for the next year so you can set goals and move forward on the front foot after Christmas, after New Years, when you’re recovered from the hangover, you can move forward in January or February of the following year and go strong. So let’s first talk about why you think it’s important that people should be reviewing their portfolio on an annual basis?
Ben: I just think it’s important. There’s this concept in the real estate industry, in the property industry, which is you buy a property and you hold it for the rest of your life until you either sell it to retire or you pass it on to your family.
And so I’ve learnt recently through some stuff that I’ve been reading that that’s obviously one strategy, and that works for a lot of people, but there’s this other strategy, which is property can also be kind of really good. You can, you know, if you’ve just made 70% in the Sydney market and you know, you might make another 5 or 10% next year, and then it kind of sits back for … It’s going to sit back for the next three years.
There might be this concept around considering selling a property, moving it into another market place that’s going to perform better. And I know you’ve talked about that with Steve [McNight 00:01:51] in that interview that you did. He definitely sees property as, you know, more liquid and not this concrete thing that you have to hold on for the rest of your life.
Ryan: Yeah. And I think there’s a lot of people who they’re not in the situation where they’re financially free at the moment and they’re ready to just, you know, settle down and their properties are doing fine. And they don’t really care about making a bit of extra money. Most of the people who will be listening to this are like in the building their portfolio stage, where they’re trying to achieve financial freedom faster, they’re trying to get there.
And by doing this and assessing your portfolio and saying, well my money is tied up here, here’s how much it’s making, could it be doing better elsewhere, is a really important thing. Because you could have your money in a property that you bought, it’s done really well, but you might look at it projected froward and it’s not going to do anything in the next ten years. Is it worth holding that property or could it actually be better to part with that and to reinvest that money somewhere else?
Ben: And this is coming directly out of talking to people. I’ve actually sat down because we were reviewing the business this week as well, and I think I’ve actually spoken to over 2,000 investors this year.
In terms of clients or people from your community that have reached out just for a chat, and what I’ve learned is that there’s people that have done really well that, you know, may have a property that is seriously worth considering offloading and reinvesting in another market or it might be worth holding it. But there’s this other side of people which have bought really, really average properties that I can’t see how these properties are going to perform in any stage over the next ten years, but we feel like we need to hold onto them for whatever reason because that’s what we’ve been taught.
And offloading that property might open up all sorts of new opportunities for those people to actually, you know, reinvest that money into something that’s going to get them two, three, four, five times the average annual growth rate than what they’re currently holding is going to do.
So that review enables you to take a step back, put your objective hat on, look at the data and then you know, have a conversation with someone like you or I would sort of go, well am I heading in the right direction? Is it even worth holding, and if it’s not, what are my options moving forward from that?
Ryan: Yeah. And this, we’re going to go into the details of how you can go and do the review in a sec, but I think what Ben was saying is really great. Just like assessing you know, what could I do in the future? Could I get a better, like better return on my investment somewhere else? And we often always have, they call it sunk cost buyers, where you’ve like invested into a property or into, it happens in all aspects of life, and you’re like, well I’ve done this much effort, I’m just going to keep going. When really, if you take a step back and assess, okay, if I was like starting from day one, let’s pretend I didn’t even own this property.
Looking at it, knowing what I know now, would I actually buy that property? And if you’re saying you know what, I probably won’t, knowing what I know now, that might be an indicator that well, you know, maybe this property is not going to perform best in the future. Might be time to go somewhere else.
But you know, we get so entrenched in what we’ve previously done, the review is so great to step back and to say, okay, let’s pretend we’re starting again. How can we do this as best possible? Because the end goal is we want to achieve our goal of financial freedom or whatever your financial goal is. We want to get there as quickly as possible and we don’t want to just hold onto a property because we bought it and it takes us an extra five years of working a job we hate to get to financial freedom ’cause we didn’t take the time to do the review.
So let’s go into what sort of thing’s we should be reviewing and how to go about this review.
Ben: You’re making me feel a bit uncomfortable, ’cause it feels like I should probably sell every single property that I own, if that’s the case.
Ryan: Well, you can only do so many things, right? So just pick one or something.
Ben: All right. Cool, so what do you want to start with in terms of the review?
Ryan: Well, it’s just like what do you do, like, let’s say all right, I want to do a review, I have no idea where to start. I know what my properties are, what do I sit down, what do I look at?
Ben: So for me, there’s probably, you know, four or five things to break it down. There’s probably actually reviewing exactly where you are right now and where, how the properties performed in the last 12 months. The second thing would be reviewing, you know, the next 12 months, five years in terms of the predictions in the future for that area and that property. And then you’ve got the smaller bits and pieces. You’ve got your mortgages, you’ve got your insurances and you’ve got your property management as well. And property management is the manager, the rates you’re paying, and also I suppose the rent return that you’re receiving from the property. So maybe we can walk thorough each of those different parts.
Ryan: Yeah, well let’s go. I think the hardest part is actually like sitting down and saying well, how’s it going to perform into the future? Is this lining up with my goals? The easiest part is going through management and insurance and stuff like that. So let’s do that first, and then we’ll get on to the more obscure sort of topics. So management. So we need to asses our management and how that’s going. What does that look like for you?
Ben: For me obviously, it’s not something that I do extremely regularly. ‘Cause I’ve thrashed around with a lot of that in past and I don’t employ managers that don’t tick my boxes anymore. But you’re really looking at have they done all of the routine inspections, which should be at least three or four in the last 12 months. What is the quality of the feedback from those routine inspections? Have there been any issues with the tenent or the property in the last 12 months? And has the management company addressed those issues for me directly?
Ben: Is the property compliant? Obviously in terms of smoke alarms, fencing pools, things like that if you’ve got them. And then there’s the second side which, you know, are my management fees actually reasonable? Because in a lot of instances you might have paid a premium when you first signed up for them, but now you’ve been with them, there’s loyalty, they don’t want to lose you. They might be open to negotiating on fees.
I own a property management company, it’s probably not the best thing to say that he goes back with me on my fees. Any of our clients, please ignore what I just said. But the reality is everyone’s open for business and you know, when you’re a low maintenance client obviously, and you’ve been with someone for a while, they will look after you a bit better. So it’s worth looking at those fees. So in Queensland, for example, in New South Wales, fees can range anywhere between six and eight percent. Pretty much the same sort of thing in Victoria.
You might be looking at five percent closer to Melbourne in some instances, but it’s definitely if you’re sitting at that higher end of the spectrum, around eight or nine percent, it’s definitely worth comparing the market, maybe looking at some of the top performing sales agencies, ’cause normally the top performing sales agencies have the best performing property management sides of their businesses as well. And you know, shopping the market and just keeping your current team account.
Ryan: Yeah, well, and I had a friend, ’cause paying more for your rental manager doesn’t necessarily equal better results. And I had a mate that was paying upwards of eight percent and stuff like that. He then did this and assessed his management, he ended up getting someone for around the six percent mark and they did a way better job with inspections and finding tenants and getting the best rent for the property. So he had a heaps better experience paying less, so it’s definitely something that’s worth doing.
Ben: Yeah, so carrying on from there, there’s a huge amount of things that you can actually outsource your property manager to take some of the stress off your day to day life so that you don’t have to think about routine things. And that might mean getting the water bills put in, the property mangers names so that they can pay them, and they’re sent directly there. It might mean getting your insurances, your rates sent there. All of those sorts of things. So you know, as you begin to accumulate a bigger portfolio, you know, you’re getting water bills, you’re getting rates, you’re having to do insurances, and all of these things start stacking up. When you start getting to five, ten, fifteen properties it can become super time consuming as I found out this week. So I’ve rung up all of my insurance companies, all of the service providers and local councils and just got my property managers actually placed on the account so that they’ve got the authority to act on my behalf.
Ben: And that, you know, outsourcing that activity can save you two to three days per year when you start to accumulate a much bigger portfolio.
Ryan: Yeah, and so is this just to allow your property mangers to pay your bills, basically?
Ben: Exactly, yup.
Ben: And that comes straight out of the rent. And then you get one very clear statement at the end of the financial year, which makes tax time a hell of a lot easier as well.
Ryan: Yeah, which is really good. So yeah, so we’ve looked as assessing management. What about looking at and reviewing the insurances on your property, and rates and things like that?
Ben: Sure. So obviously neither of us have licenses to really talk about it, but I can share my personal experience this week ’cause I’ve just spent the whole week doing this stuff. Insurances are insane. So I’ve just realized I’ve probably been paying $3,500 per year too much for the last seven years when you factor it all out. What I’ve just learned this week is that by increasing my excesses to a point, like at the topper end of, and for some insurance companies, that’s $1,400. For others, it’s $2,000. It’s actually reduced my premium to over 40% for that property for the year.
So I think if I don’t have an insurance claim on a property for two and a half years, I actually get a return on my investment. So I’m sort of rolling the dice going I might have to pay a bigger excess but it’s going to save me significant money over the next 30 years by doing that.
So, looking at increasing premiums potentially, something that I’ve just done. Actually comparing providers, like I have seven piece of insurance with one provider and you know, similar to what you said before, I’ve always been using this provider. I just continue to use them. I rung up a few others from some feedback from some clients, and ended up saving myself an absolute fortune, getting a much better experience, and an actual account manager at the insurance company that will look after me directly moving forward now as well.
Ben: Those things are super powerful, and there’s [crosstalk 00:11:51].
Ryan: So good to have like an account manager that you can work with. Oh man, it makes such a big difference.
Ben: [crosstalk 00:11:56] Yeah.
Ben: Oh yeah.
Ryan: Yeah. So looking at management, looking at insurance, we’re kind of getting into … Oh, also looking at rental income. So obviously we need to assess what are our rents at for our property? Have they gone up this year? How much have they gone up by? Or do we need to increase them? And obviously increasing your rents depends on, you know, your leases and things like that. But I think taking the time to assess the market, look at some other properties in the area and to say what are other properties similar to mine renting for? And then try and understand okay, is my property, could I actually rent it for more? As well as talking to your management as well, to see what they think.
Ben: 100 percent. And you can ask your management company to give you like a comparative market analysis, and legally they have to provide it to you. And they will go into RP data and real estate investors data, pull absolutely everything that you can’t see online together and produce a rate that is in line with where the market values should be. So that’s probably the best way to do that. If you’ve already got a fixed term you could begin to set your tenant’s expectation that you’re going to jump the rent, or if you don’t to jump the rent now you could negotiate a 12 month lease with, at the six month marker, little jump in rent to sort of guarantee that increase in the future as well.
Ryan: Yeah. So that’s very important to look at because we see way to many investors who just leave their rent where it is because they’re too scared to increase it. But it’s a standard part of rental life, when you’re living somewhere that rents go up. Doesn’t necessarily mean every time you increase the rent someone’s going to leave. But yeah, so do your research and then obviously make an educated decision based on that.
So we’re going to look at, next I think we should talk about assessing the market place and where it’s at for the future, as well as like whether or not this property aligns with your goals. And we’ve done I guess countless videos talking about this sort of stuff and how important it is to actually have your goals set first, what do you want to achieve from this particular investment, and then go into it.
But in this case it’s a little bit backwards ’cause people are already owning investment. So how do we go about, yeah, like assessing the market place performance and whether or not it fits in with our goals.
Ben: There’s probably a series of key performance indicators. Again, I think you and I have actually done a series on this. We’ve talked about it, as you said, in previous episodes and videos, but for me it’s important to understand, I suppose, just working logically through the things that I look at every year for each of my properties. I definitely look at what the median price point in the suburb is, what the median rent is. I then begin to look at obviously the capital growth in the suburb over the last three months, over the last twelve months, over the last three years and up over the last ten years, and begin to get a picture of what’s going on, how it’s been performing.
Ryan: So we’re basically assessing the market like we would if we were going to buy there today. Like, lets pretend we don’t own a property in that market and we’re thinking about investing there, we do all of our research that both of us teach, do you do the same assessment when you own the property? Just see what is this market doing?
Ben: Yup. So it’s exactly the same assessment. It’s looking at that sales history data as well, and really getting an idea of you know, let’s pretend I don’t even own here, what’s the market objectively doing? And not putting that emotional I think my property;s worth an extra 49 grand than it is, because on realestate.com there’s one outlier that’s selling at that price.
Ryan: Yeah. Yeah, and I think as well taking the time to I guess reassess your goals for the coming year, which we’ll talk more about in the next episode we’re going to record. But yeah, to say … ‘Cause goals change over time, our situations change over time, you know, like I’m a prime candidate of that. Currently we’re doing up a camper van and going traveling, and so like, I didn’t have that goal two years ago or one year ago. So goals and our situations change over time. So it’s really great time at the end of the year to really assess. Like, we all have our New Years resolutions, but beyond that it’s just okay, financially what am I hoping to achieve from my property portfolio this year, setting that first, and then you’re assessing your properties, and saying okay, is this property helping me get towards that goal or is it holding me back.
Ben: I had a strategy session, the first session, with a client the other day. I think that was in your community. And they came to the call saying they wanted to replace $16,000 worth of income over the next 15 years. And I said, that’s awesome.
This is how we’ll do it. Very simple. And by the end of the call they were like, nah, I want to replace 120 grand, 150, and I’m like, whoa, whoa, whoa! Like, you don’t need to do any of these things just because you now know how to do that doesn’t mean that you should go and do it. And that’s a big thing as well. You know, goals do change. Sometimes they ramp up but sometimes, like in both our lives, they’re probably ramping down a little bit now.
Ben: And you’ve taught me that it’s completely okay to not constantly grow. It might actually about you know, getting better and doing less and that actually resulting in more in life. So it’s really important to remember that next year doesn’t always have to be bigger, it can actually just be better, or a higher quality life as well.
Ryan: Yeah. Absolutely. So, just to I guess recap what we’ve talked about, every year it’s great to assess your portfolio, assess how it’s doing and predict how it’s going to do in the future. Look at things like management, whether you’re getting top rates, if you’ve got a good management company or you could get better, as well as the services that they provide for you. Go ahead and look into your insurances as well and check that everything’s good there.
Assess your rental income for the property to see whether you could increase the rent, make sure it’s at market value. As well as actually research your market place like you would if you were buying for the first time in there, just to see, okay, what’s this doing in the future? As well as I guess predicting how that’s going to affect our property and whether that lines up with our goals.
So, that’s kind of like an overarching summary of like what we advise that you guys should be doing each year. It’s not necessarily a super easy task, or it’s not necessarily something that you can completely outsource or just ignore. Like it does take time. But I think we’re both agree that it’s going to pay massive dividends down the road.
Ben: Absolutely. Yeah, I think it’s a great use to pass the day and it also makes you feel comfortable for the coming year, knowing that you do have everything in order.
Ryan: Yeah. And is this something that you do for your clients? Or do they do it themselves?
Ben: Yeah, so after someone’s worked with us and we’ve bought them the property, we send them an annual email with all of this as an actual update so they don’t have to do it themselves. And then we also offer them a one to two hour strategy session every 12 months to do this with them over the phone, so again, they don’t have to be doing it on their own. And that’s just a complimentary after sales service that we offer.
Ryan: Yeah, and that’s something that you probably don’t get from many buyers agents, ’cause they’re just like, I sold you a property and now like, then they disappear. And they like cease to exist. So it’s great that you do that and keep our clients updated.
If you guys are interested in potentially hiring a buyers agent to help you find a great property to invest in, then I highly recommend Ben from Pumped On Property. So Ben’s achieved financial freedom himself through his portfolio and now helps others invest as well.
So if you are interested in that, go to onproperty.com.au/session, and you can book a free strategy session with Ben to talk though, you know, maybe your goals for the coming year, where your portfolio is at the moment, and to see whether it’s a good fit to work together. So that’s it from us today guys. Thanks so much for coming on Ben, and until next time, stay positive.