I began to take the concept of sustainability very seriously within my property portfolio only when I realised that certain investments we had made could possibly jeopardize what we’d already built up. Until then, I was mainly interested in building up a decent–sized portfolio, steadily counting the numbers we were accruing. But let me ask you this, would you rather have a £5M portfolio which is cash-flowing at £2,000 pcm or a £2M portfolio which has £4,000 pcm income? I know which I’d rather have!
My definition of sustainable investment covers many different angles which I will share with you now:
- Striking a balance between achieving capital growth and income means that you are maximizing the risk/reward ratio of the two strategies. Being too heavily invested in either could leave you exposed to significant changes in the market. This means buying in an area with proven steady growth over time, decent job opportunities and investment from Social or Private enterprise which creates good rental demand as well as the aspiration to own property or move up the ladder.
- Defining a way of making your capital go as far as possible will also build in the sustainable element. What do I mean by this? If you are able to purchase, add value and refinance for a significantly improved end value, then you will ‘recycle’ your own funds and create a very sensible ‘buffer’ on paper so as to mitigate yourself against any future drop in the market. Doing this allows you to invest and do well regardless of overall market conditions.
- Future proof from the start. When buying older properties, inevitably they tend to need closer attention than newer stock. I have seen too many properties left to deteriorate by Landlords who should know better. Taking the ‘quick fix’ approach when acquiring your properties and setting them up will almost always end up costing you more in the end. Covering up problems on the surface and hoping they’ll go away really isn’t a very good idea. Better to ‘bite the bullet’ and get any refurbishment jobs done properly from the get go, than to have to try and retrace your steps causing disruption and inevitably more costs in the long run.
- Keep your leverage at a manageable level. For most people, getting onto the property ladder means borrowing at a high percentage of the property value. Just like most banks who want you to pay this amount back on a repayment basis, it is also a good idea if you possibly can, to reduce your level of lending over time with the extra cash-flow you make. A high level of gearing has led to desperate times for many in recent history with the reality of negative equity and an inability to refinance hitting home hard. Avoid this as much as you can by factoring in whatever level of LTV (Loan-To-Value) you are comfortable with.
In essence, the idea of building up a sustainable investment property portfolio means that you can relax in the knowledge that you are in control of your investments. Being at the mercy of global/local economics, interest rate fluctuations, the lender/bank, etc, can lead to a feeling of insecurity. Planning your portfolio with care and attention to detail will minimize the risks and lead you and your family into a fruitful future.
For more information and help or guidance, feel free to contact me using the form below.
Hazel de Kloe | Property Mentor and Coach | Speaker | Author
The contents of this article are for educational purposes only and we make no recommendation of any particular investment. The price of property can decrease as well as increase and you make any investments in property at your own risk.
© Why Property Works 2014 | www.whypropertyworks.co.uk