Have you checked your Property Portfolio will Deliver what YOU Want?
Tuesday, March 2nd, 2010
Kate Faulkner asked:
Most people just decide ‘I’ve got a bit of cash’ and then ‘I’ll buy a property’. Next thing you know, you’ve got a ‘bit more cash’ so you ‘buy another property’. Then you’ll say, ‘I’ve put my money into property for my pension’ or ‘I’m leaving the kids a property portfolio’.
If this is you, let me ask you a question – have you actually worked out what your portfolio is worth and whether it will deliver what you want eg a pension? Or what tax your kids will pay to inherit the portfolio you’ve left them? Have you ever checked with an Independent Financial Advisor or Wealth Manager whether your portfolio can be protected or will deliver to you in your retirement?
If not, then now is the time to do so – don’t leave it for a few years, you never know what will happen. Sorry to be ‘doom and gloom’ but things happen that are out of their control, people get sick, lose their job and then lose their home or homes in the case of property investors. It’s happening to people now and now is your chance to make sure it doesn’t happen to you!
Top Five Tips to Ensure your Property Portfolio Delivers what YOU Want!
1. Be clear about what you want from your portfolio. Is capital growth more important than income or vice versa? Are you maximising your property ‘box’?
2. Are you fed up with looking after tenants or managing a build or renovation? Then see if you can employ someone to do it for you. Want help finding someone to manage your property project, then contact us.
3. What level of risk are you willing to take? Property is typically a ‘medium’ financial risk, you may want to take more risk the younger you are and less the older you are.
4. What’s the value of your whole estate? For example, how much are you worth if you died today (sorry, not trying to depress you, but this is important if you have a family!).
5. Track how well your property portfolio is doing versus other investments. For example, general share indices grew by 50% in the last 12 months while property fell by nearly 10%.
Top Five Things that will STOP your Property Portfolio Delivering what YOU Want
Property won’t always deliver what you want. Take people that have invested since the peak in 2007 (and since 2006). Typically property values have fallen, they are struggling to re-mortgage their portfolio and are stuck on high interest rates. These high rates mean that rental income isn’t necessarily covering the costs of owning and running the property so their portfolio is running at a loss.
If you don’t want your property portfolio to fail, then make sure you run a ‘portfolio health check’ to ensure yours is successful!
What would happen if………
1. Personal taxation increased? At the moment you are taxed at either 20%; 40% or 50% of your income (and 50% is a new tax rate). What if taxes went up to 25%; 45% or 60% – would you still make any money?
2. Property taxes. Currently capital gains tax is just a flat rate of 18%, what if the government brought back the 40% tax rate for all capital growth on a second home, what would this do to your portfolio when you come to sell?
3. Inflation. Over the last 10 years, rents have only really grown by around 10% (on average), while inflation has ranged between 1.5% per year and 4% per year. In other words it’s hardly kept up with costs at all. What effect will inflation increases have on the value of YOUR rental income in the future?
4. Property Price fluctuations. We’ve all seen property values (in the main) fall from 20% of the 2007 peak. How much further do they need to fall for the value of your property to be negative (ie less than your mortgage), or falling less than the 25% equity you typically need to have in the property to re-mortgage.
5. What Costs might go up? What’s your rental income versus costs break even? If mortgage costs go up by 10% or 20% will you still secure net income from your property or have to put money in? What about insurance costs, if they grow by 30% this year, will this push your property into a loss making situation?
Work out what your top five costs are and what increases you would need to see before you start losing money.
Most people just decide ‘I’ve got a bit of cash’ and then ‘I’ll buy a property’. Next thing you know, you’ve got a ‘bit more cash’ so you ‘buy another property’. Then you’ll say, ‘I’ve put my money into property for my pension’ or ‘I’m leaving the kids a property portfolio’.
If this is you, let me ask you a question – have you actually worked out what your portfolio is worth and whether it will deliver what you want eg a pension? Or what tax your kids will pay to inherit the portfolio you’ve left them? Have you ever checked with an Independent Financial Advisor or Wealth Manager whether your portfolio can be protected or will deliver to you in your retirement?
If not, then now is the time to do so – don’t leave it for a few years, you never know what will happen. Sorry to be ‘doom and gloom’ but things happen that are out of their control, people get sick, lose their job and then lose their home or homes in the case of property investors. It’s happening to people now and now is your chance to make sure it doesn’t happen to you!
Top Five Tips to Ensure your Property Portfolio Delivers what YOU Want!
1. Be clear about what you want from your portfolio. Is capital growth more important than income or vice versa? Are you maximising your property ‘box’?
2. Are you fed up with looking after tenants or managing a build or renovation? Then see if you can employ someone to do it for you. Want help finding someone to manage your property project, then contact us.
3. What level of risk are you willing to take? Property is typically a ‘medium’ financial risk, you may want to take more risk the younger you are and less the older you are.
4. What’s the value of your whole estate? For example, how much are you worth if you died today (sorry, not trying to depress you, but this is important if you have a family!).
5. Track how well your property portfolio is doing versus other investments. For example, general share indices grew by 50% in the last 12 months while property fell by nearly 10%.
Top Five Things that will STOP your Property Portfolio Delivering what YOU Want
Property won’t always deliver what you want. Take people that have invested since the peak in 2007 (and since 2006). Typically property values have fallen, they are struggling to re-mortgage their portfolio and are stuck on high interest rates. These high rates mean that rental income isn’t necessarily covering the costs of owning and running the property so their portfolio is running at a loss.
If you don’t want your property portfolio to fail, then make sure you run a ‘portfolio health check’ to ensure yours is successful!
What would happen if………
1. Personal taxation increased? At the moment you are taxed at either 20%; 40% or 50% of your income (and 50% is a new tax rate). What if taxes went up to 25%; 45% or 60% – would you still make any money?
2. Property taxes. Currently capital gains tax is just a flat rate of 18%, what if the government brought back the 40% tax rate for all capital growth on a second home, what would this do to your portfolio when you come to sell?
3. Inflation. Over the last 10 years, rents have only really grown by around 10% (on average), while inflation has ranged between 1.5% per year and 4% per year. In other words it’s hardly kept up with costs at all. What effect will inflation increases have on the value of YOUR rental income in the future?
4. Property Price fluctuations. We’ve all seen property values (in the main) fall from 20% of the 2007 peak. How much further do they need to fall for the value of your property to be negative (ie less than your mortgage), or falling less than the 25% equity you typically need to have in the property to re-mortgage.
5. What Costs might go up? What’s your rental income versus costs break even? If mortgage costs go up by 10% or 20% will you still secure net income from your property or have to put money in? What about insurance costs, if they grow by 30% this year, will this push your property into a loss making situation?
Work out what your top five costs are and what increases you would need to see before you start losing money.
