As the New Year Looms, it’s Time To Review Your Property Portfolio

Given the year the property sector has endured, it might be superfluous to suggest to any landlord or investor that it’s time to review your property portfolio; we rather suspect you’ve been doing that on a monthly basis!

However, it’s also a sensible practice to take a good look at your investments at least once a year to ensure that they are still performing at a level with which you’re happy and that they are continuing to contribute to your long-term goals.

Drawing on our experience of buy-to-let investments, and the property sector in general, we’re going to offer some thoughts and advice on what to consider when reviewing your current property portfolio and any subsequent actions.

We appreciate that many of you may have investments other than property in your portfolio, but as that’s not our area of expertise, we will, as Wittgenstein said, pass over that in silence!

First, grab your yardstick

We’ll assume that no-one is saying ‘what yardstick!’ The only yardstick that really matters is your strategy and goals, as regardless of the bigger picture, if your portfolio is still positively contributing to your future, then things are looking good.

This is one of the reasons why knowing what you want out of your investments is so important. Without this, you really have no mechanism to decide whether or not your investments are working for you, or against you.

What should you be reviewing?

A very sensible question, and one that is easy to answer, although depending on the composition of your overall investment portfolio, there may be parts of it which honestly fall outside our area of expertise.

We’ll concentrate on the property side of your review. We find the following 6-step approach works well for many investors:

1. Have there been any changes to your reasons for investing, your circumstances, or your goals?
2. Have you changed your attitude to risk?
3. Could your investments have performed differently? If so, why?
4. Do you need to consider rebalancing your portfolio?
5. Has there been a significant change in the cost of your investments?
6. Have tax rules or allowances changed significantly affected your portfolio?

Change

Changes, whether expected or not, can have a significant impact on your portfolio. What once was perfect may now not be. Children, change of employment, illness or, more positively, an influx of cash can all impact your investment decisions.

If there have been significant changes in your life, decide whether they necessitate a change in your investment strategy and therefore your portfolio. You may find you need at least one investment to deliver sooner than planned for instance.

If that’s the case, you may need to consider realising the value in one or more of your investments.

Risk

It’s not at all unusual for people’s attitude to risk to change over the life of their investments. What might once have seemed risky, but worth it, might now appear to be a little concerning.

If that’s the case for you, does this apply to all of your portfolio, or are there certain investments which you would like to change to something a little less challenging? If so, identify them and decide what you can do to replace them or reduce risk.

Performance

Have your investments performed as expected? Have they done better or worse? If your investments aren’t living up to expectation, can you identify the reasons that they’re not performing?

Once you have identified the causes, can you practically do anything to improve performance? If the answer is yes, and the effort required against improved return is acceptable, then you can move forwards.

If the reasons are outside your control, can you live with the impact and expect circumstances to improve over the life of your portfolio? Interest rates might be an example of such an issue, or broader economic problems you cannot change.

It may be that a combination of circumstances you cannot change and no realistic prospect of improvement will suggest that a change of investment strategy is needed to bring your portfolio back on track.

A delicate balancing act

This brings us neatly to whether or not you need to rebalance your portfolio. In the property market, that may involve looking at income versus long-term growth and deciding if the current mix is delivering what you need.

With rising mortgage rates and inflated cost of living you may feel that you need to increase your regular income; alternatively you may decide to focus on long-term returns and accept some short term reduction in cash flow.

Do the costs add up?

All investments come at a cost, and the assumption is that the benefits will outweigh those. You can only be sure of that however if you keep a weather eye on what your investments are costing you.

For landlords those costs can be myriad; maintenance, licensing where necessary, insurance, unexpected repairs, void periods – the list feels endless.

Interest rate hikes and increased cost of living impact directly on the investor, every bit as much as they do for their tenants, so taking a hard, dispassionate look at your costs, current and future, is well worth your time.

Press reports would have us all believe that millions of landlords have already done this and fled the market. Those of us involved day-to-day know that this isn’t the case, but these are undeniably challenging times.

Everyone knows to stay on top of their income streams, but don’t neglect your costs or you could discover that your profits have been quietly swallowed up while your attention was elsewhere.

Tax

We’ll not even pretend in some jocular manner that we all love tax. We don’t – no one does. It is significant that the current government has taken several decisions which will disproportionately affect small businesses.

Reductions in the dividend allowance and changes to the capital gains tax annual exempt allowance could have serious implications for investors whether they operate as limited companies or not.

Our advice, as ever, is speak to your accountant on a regular basis so that you fully understand the implications for you of these changes, and whether or not you need to change the way you work or invest.

It looks increasingly probable that we’ll see a change of UK Government at some point in 2024, but there is no reason at present to assume an incoming Labour administration is likely to roll back these changes.

Watch out also for tax changes specifically aimed at property investors whereby ‘stamp duty’ increases for the purchase of additional properties. We have covered this extensively in previous blogs.

Advice from the property pros

We’re going to keep this brief, as there is quite a lot to digest already!

The bottom line: Reviewing your property portfolio is essential to making it a success. As a piece of advice that always sounds so trite, but sadly not all investors look at their investment in the round frequently enough – if at all.

Failure to review your portfolio is sowing the seeds of a broader failure as you’ll be unprepared for the vicissitudes of fate, never mind the even less predictable paroxysms of governments.

The expression ‘passive income’ is often bandied about when discussing investments, but in truth there is really nothing passive about it. If you’re going to realise your goals, you have to be active in managing what’s going on.

In summary…

If you’ve made it this far – thank you!

No investment worth making is risk free nor are they hands-free. To succeed they require a level of commitment and active management on your part.

We are always happy to discuss all aspects of property investment, especially buy-to-let investments – not just the ‘buy a house, rent it, make money’ aspects of this business.

We take pride in both our professionalism and knowledge of the ins and outs of the private rented sector – if you would like to know more just pick up the phone and let’s chat!

Written by Ross MacDonald, Director of Sales & Cofounder of Portolio

Get in touch on 07388 361 564 or email to [email protected]