Building a property portfolio – Capital management basics
Property investment is a developmental, cumulative form of investment. Capital is accumulated, and the best use for that capital is to create more capital. Typically, a preferred option is to acquire more properties. This involves creating a property portfolio management system and some very good accounting practices.
People tend to overrate the issues in property portfolio management. There are some basic principles that make it a lot simpler:
- Keep your properties very well maintained- This is basic common sense, but includes the component of eliminating the risk of a massive upgrade requirement and related costs. “Get it done now” is a far better financial management policy than “Guess what all this is going to cost” ten years from now.
- Set up a pro forma accounting system for your property expenses and income- A good tax accountant can do this for you in a few seconds. This is a cover-all-the-angles approach, and it provides you with a built-in and very efficient database for any information you need. Your accountant can also keep track of any deductions and tax entitlements you may acquire automatically.
This type of management is simple, effective and uses up very little time. You’re always on top of any issues, too, another major positive for portfolio management of multiple properties.
Expanding your portfolio
To expand a property portfolio involves a combination of best use of capital assets and a good understanding of the market. Best practice is to get professional property investment advice as required regarding potential purchases and sales. You’ll also find your accountant is a goldmine of information on tax issues, offsets, and tax minimization (real tax allowances, not some sleazy scams) which can help you maximize your capital returns on your properties.
To manage your portfolio acquisitions and sales:
- Watch your asset values- Buying and selling is the basis of expanding your portfolio. You need to have clear financial goals and a good sense of values to make the most of your portfolio. Some deals are worth it, some aren’t.
- Stay in the financial safety zone- Don’t commit capital you don’t have. A market downturn can put things on hold, and dry up income from property sales. If you’re borrowing, you can stretch yourself in ways you don’t want to be stretched. This is a very common issue for property investors at the early stages of building a portfolio, and it’s a very avoidable problem.
- When you see an investment property which interests you, check it out thoroughly– All professional investors carry out extensive checks on their purchases. One of the reasons they don’t go broke is because they avoid bad deals in the process. It’s a terrible mistake to assume that property investment can be done on autopilot- It can’t, and it shouldn’t be. You must check out any possible problems, because if you don’t, you’re literally buying the problems.
Building a good property portfolio is one of the best possible forms of investment. Get it right, and you’ll be laughing all the way to retirement.