July 13, 2021
If you want to become a successful property investor, one of the things you need to learn is portfolio review and recalibration.
A regular portfolio review is key in ensuring your property is consistently performing and if it is not, you will need to recalibrate the portfolio to make sure it still matches your targets.
These are strategic moves that separates the pros from the amateurs and they are usually undertaken regularly – at least once a year.
And in view of the current economic landscape, every investor should evaluate their property investment to make sure they are able to weather the challenges in the property market.
Here’s what you need to do:
1. Review your investment allocation and finances
The property investment landscape has changed drastically due to various factors, including the overhang of certain types of properties, the COVID-19 pandemic, job insecurity, and many more.
Hence, you need to do a “health-check” on your property portfolio to identify those that are performing well and having a promising outlook as well as those that are not, in order to decide which one to keep and dispose of.
You should also review your financial position to find out what you need to do after you sell off the underperforming property – setting aside some money to protect yourself against unexpected events, or spend the money on the bargain deals in the market.
2. Adjust your portfolio for diversification
In order to keep your property portfolio in alignment with your investment targets, you will need to sell off properties that are buying a hole in your pocket and buy the ones that will bring positive cash flow and better capital appreciation potential.
The key here is diversity - don’t put all eggs in one basket. Investing in different types of properties in different locations will protect you from exposing your investments to different adverse economic scenarios and market forces.
A diversified property portfolio can take many forms –
a. Properties in different regions – city centres, city fringe, suburbs
b. Properties of different types – landed homes, apartments/condominiums, shop-offices, industrial factories/warehouses
c. Properties catering to different types of “users” – professionals, blue-collar works, families, students
3. Be realistic on the short- and long-term returns
Some properties are high-growth and low-yield investments, earning you wealth through long-term capital appreciation. Other properties may be high yield cash flow positive right away, but struggle to improve in capital value.
Nevertheless, property investment requires patience and strategy to ensure its success.
When evaluating properties to add to your property portfolio, it is important to look beyond current prices or rental income and speculate on how much they will be worth years from now.
Hence, if you are buying a property now to diversify your portfolio, make sure you have sufficient financial buffers to deal with events where the property you are buying is unable to deliver positive cash flow.
There are opportunities for real estate investors to make money in any economic climate. You just have to know where you are in the market and adjust your focus and strategy accordingly with proper planning and research.