FINANCIAL HEALTH CHECK

With the End of the Financial Year upon us, now is the time to undertake a Financial Health Check. It is essential for property investors to regularly review the financial health of their portfolio, as this is crucial for long-term success.

This review allows you to identify underperforming areas, reduce unnecessary costs, and capitalise on growth opportunities.

Here’s how to get started:

1. Review Rental Income vs. Expenses

Begin by calculating your net rental income. Compare your gross rental income to all associated expenses, including mortgage repayments, insurance, maintenance, property management fees, and service charges. If expenses are increasing or rents have stagnated, it may be time to reassess costs or renegotiate contracts with service providers.

2. Evaluate Cash Flow

Healthy investments generate positive cash flow. Review monthly and annual cash flow statements to ensure your property is covering costs while leaving a buffer for unexpected repairs or vacancies. Negative cash flow may be manageable in the short term for capital growth strategies. However, you should closely monitor the pros and cons.

3. Assess Capital Growth and Equity

Track how your property values have changed over time. Obtain updated property appraisals or valuations to measure capital growth. Then, calculate your equity by subtracting any outstanding mortgage balances. Knowing the value of your property is vital if you are considering refinancing or leveraging equity to purchase further investment properties.

4. Check Your Loan Structure

Mortgage interest rates, fixed-term periods, and loan-to-value (LTV) ratios can significantly impact your returns. Review your financing regularly to ensure it's still competitive. Consider speaking with a mortgage advisor to explore refinancing options, especially in a changing interest rate environment.   

5. Monitor Rental Market Trends

Stay informed on local market trends. Are rental values rising or falling in your area? Is tenant demand increasing? Take the time to review this information online. This insight can help you make data-driven decisions about rent adjustments, property upgrades, or even selling underperforming investment properties.  

6. Budget for Maintenance and Improvements

Review and set aside a realistic budget for ongoing maintenance and future improvements. Well-maintained properties attract better tenants and reduce the cost of emergency repairs. Consider improvements that can increase rental yield or property value over time.

7. Review Your Tax Position and Compliance

Ensure you are maximising allowable deductions and staying compliant with tax laws and tenancy legislation. Schedule an appointment with an accountant or financial advisor to review your tax efficiency, especially if your portfolio is growing or has multiple structures (E.g. Personal ownership, trusts, or limited company).

By taking a proactive approach with a financial health check, you can ensure your property investment portfolio remains profitable, resilient, and aligned with your long-term financial goals.