We proceed through more of the property core skills, with this week being something of a double-header. We will look at managing properties and our portfolio as well as managing projects.
There’s a fair degree of common ground here, with several recurring themes.
Location & investment fundamentals, running the numbers, occupancy & buyer options, stakeholder qualification, our level of engagement, management, operating as a business and time horizons featuring across all of these 3Ps of managing properties, projects and our portfolio.
It’s another action-packed ‘content episode’ again this week!
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Transcription of the show
We proceed through more of the property core skills, with this week being something of a double-header. We will look at managing properties and our portfolio as well as managing projects.
There’s a fair degree of common ground here, with several recurring themes.
Location & investment fundamentals, running the numbers, occupancy & buyer options, stakeholder qualification, our level of engagement, management, operating as a business and time horizons featuring across all of these 3Ps of managing properties, projects and our portfolio.
It’s another action-packed ‘content episode’ again this week!
Property Chatter
Welcome to the property voice podcast helping you to navigate safely through the world of property investing, get the lowdown and updates, insights and outcomes on all matters property with a splash of entertainment along the way to a property voice or voice to trust among the crowd. Now, let's get started with your host, Richard Brown.
Hello, and welcome to another episode of the property voice podcast. My name is Richard Brown. And as always, it's a pleasure to have you join me again on the show today. Well, we're continuing the series of property core skills. And this week, we're going to be looking at managing properties, projects, and portfolios. And this is part one if you like of that particular subcategory or portal property core skill. And this is what I call a content week. So this is just me if you like talking to set the scene. And then hopefully over the next couple of weeks, we will have a bit of a discussion that goes on around the same topic to deepen and broaden the conversation. So let's just get into it. Managing properties, projects, and portfolios three-piece, obviously. Now what I did is I kind of just pieced together okay, right? There's what would I summarize in each of the areas whether it's managing property, managing a project, or managing a portfolio, kind of map that out. And then I realized there's a lot of commonalities, there's a lot of common themes if you like. So I'm going to start by just summarizing the themes, and then we're going to get into how they may slightly vary depending on whether you're looking at a property, managing a property, managing a project, or managing your portfolio. So there is some commonality, but there is a difference too. So the eight points, which I guess are common as follows, so we've got the location. So location is one of the most important considerations that we need to consider. And along with location comes the investment fundamentals. So it isn't just a case of necessarily picking next door to where we live, it's also looking at well, you know how valid that is from an investment point of view. The second point is running the numbers. So we need to quantify and qualify if you like, the investment, what it means to us, is it going to deliver on our returns, what our return expectations, and we need some criteria to judge that against. So to set you up for what's coming. The third thing we need to look at is who is going to be occupying the property or buying the property from us depending on the see what the nature of exit is, it's managing a property that's probably a tenant or an occupant of some description. And if we're undertaking a project, it could still be a tenant if we're planning to retain that property. But of course, it could be a buyer, if we're looking to sell it on. The fourth element is stakeholder qualification, as I like to call it. So that's just basically checking who you're working with. Okay. So stakeholders are anybody who's got an interest in your property, your project, your portfolio, anybody that you engage anybody that you serve, actually, so we'll come on to that. Next is our respective engagement level. So that, you know, basically is how much time and effort and energy do we want to put into the particular property, project, or portfolio. And we could either be Active Passive or use some level of delegation for outsourcing in that respect.
The sixth area is property project or portfolio management. So it's taking on the engagement level to a different type of level, I suppose, it's just you know, taking a slightly higher high view of the seventh area is operating as a business. Now, if you listen to my podcast for any length of time, you know that I often talk about operating our property investments and projects as a business. So it's no surprise I'm sure to hear that's one of the key points. And the eighth and final point, which I guess comes up is time horizons. And time horizons can be short, medium, or long term. So there we go. That's just set the scene. So now we're going to dive into each of those areas, I'm going to look at managing property, sorry, yes, managing properties next, and just going to run through some of those particular elements for you. So we're not to managing properties, it's probably as it's managing a property, it's probably mid to long term as a time horizon. So I'm just going to talk about time horizons at the beginning, we're probably gonna be holding it for a reasonable period of the time period of years, if not decades. Okay. So mid-years, long decades. That's the first consideration. So it's kind of a long-term engagement. And the first point is really to consider the location. So where do we want to invest? So this is really a property that we're going to hold and we're going to rent it out. So we need to look at what we call the investment fundamentals. That's things like the supply-demand for rental property. And, you know, some of the indicators that can also help with that are population, not just the overall size of the population in the catchment area, but the trend population growth, population decline property, population stagnation. So, population and trending is one of the key things I would suggest you look at. Another characteristic is employment. So, relative to what is the employment level in the local area, I mean, this is obviously going to be relevant to the type of tenants that you want to attract. If you want to attract a benefits tenant, you're probably looking for high unemployment, actually. But most of us are probably looking for working tenants of some description. So, therefore, we're looking for perhaps average or below average unemployment in the local area, we need to consider things like transport links, how easy is it for our tenants to get to where they need to go usually to work, but also for leisure and entertainment purposes as well. So transport links, which is which are relevant to our tenant occupants. So it could be a bus, it could be a tram, it could be a train, it could be a car could even be a bike, or other type of public transport. So a bike isn't public transport, you know what I mean? So who transports the next one, I mean, it is meds These are things like shops and post offices and doctors, restaurants, bars, entertainment, etc. Schools, I was mentioned schools, schools could be relevant, if it's family, it could be relevant. If it's a post-grad or a student occupant, it can be largely irrelevant or actually relevant for a different purpose if you're trying to attract a different type of occupant. So someone who doesn't want to be next door to a school wouldn't, you know, maybe a young professional might not be next door, one might not want to be next door to a school, for example. So schools is relevant, but it could be irrelevant if you follow me. And the other one I really like to look at is an inward investment. So inward investment falls into two categories, public or private. So the public investment is things like you know, infrastructure projects, redevelopment projects in the local area, you know, is money being pumped in from the government, beaver central or local and equally in when investment could come from the private sector as well. And that's usually in the forms of, you know, new jobs being created a new jobs being created because someone's coming into the local area. So, you know, could be an employer who's coming into the area, and when attracting jobs, jobs, and that could also bring in their supply chain as well. So when employment as well, what I tend to look at is or employers is trying to avoid a concentration of a single employer in an area where there's too much dependency on that particular employer. So have a bit of diversification, but look for strong inward investment, whether it's public or private. I, of course, the other thing we've locations to consider is literally where is it in relation to where we live or work. And that's going to drive how easy it's going to be for us to be involved in the management side of things. And I'm going to come back to the management side of things in a minute. So where is it relative to where we live or work. And of course, it's not, of course, but there could be a trade-off, it could be a trade-off with where the investment location is versus where we live or where we work. So for example, there's, there's this be transparent about it, there's usually there is a north-south divide, there's higher earnings in the south, and less earnings in the north, for example. And yet, investment returns in terms of gross yield, at least, are higher in the north, and lower in the south. So you've got this sort of disconnection if you like, there's the concentration of income and wealth, dare I say, in the south, but there's the concentration of opportunity to get a return on your investment, perhaps in the north. And when I say North, I just mean outside of the, you know, the of London, we ripple out from London, if you like, because you're not trying to cast any, you know, doubts on any particular area. But that's just the fact. So there's gonna be a trade-off in terms of performance, perhaps, income returns and capital returns is something else to keep in mind. I mean, I wish I could have had a pound for every time I asked somebody what's more important to your income or capital returns? And their answer being both, that'd be a very wealthy man. But basically, you don't usually get both on if you do, it's, you know, you can target areas where you might get both. So an upcoming area, which has got high income in the short term, which means a high yield in the short term, where prices might rise, ironically, then you'll start to get a squeeze on rents as prices rise. Fair enough. But so you can catch a wave if you like and get some capital growth, for by choosing an area, you know, well, and of course, over the long, long term, you'll get capital growth anyway, if that there's been some research which actually says, in terms of a biter, less investment, you've read that approximately 50% of your returns from income and 50% returns from Carol so just contradicted myself there. But that's basically over a long period of time, a period of decades. So essentially, so But so what's most important to you? So here's a hint, if you're looking to supplement or replace your job income, that income is going to be your priority. If you're looking for more long-term saving pension or legacy planning, then capital is going to possibly be more relevant to you. And you know, I know people like to mix and match and get the best of both worlds, there you go. The second thing to consider is what I called running the numbers. So when we're looking at managing properties, we need to provide for all of the costs. And I again, if I had a pound for everyone who I spoke speak to who does not look at all of the costs. So there's usually a joke, this is Richard model versus your model, that in my model, I provide for voids and maintenance, for example, and management costs if you're going to use somebody to manage the property for you. And by the way, even if you're not using somebody to manage the property for you better pricing the value of your time. So include the provision for all costs, everything, have a financing strategy. Okay, what does that mean? Well, a lot of people say Should I go for, you know, should I go for a variable mortgage, two-year fixed, five-year fixed, 10, year fixed, etc? Well, that's actually quite a big topic. And I don't really have time to go into it now. But needless to say, I look at what I call the total cost of financing. I look at equity, leverage, and debt ratios, I look at whether fixed or variable makes sense, depending on you know, perhaps a view on interest rates, also what my plans are with the property, because I may not want to keep this forever. So I may or may need to build in some flexibility.
So they're the things in terms of the financing strategy. The next thing to look at is what I call KPIs or key performance indicators. So I boil these down normally just two or three. And so you could have something like net annual cash flow, or, and or profit, cash and profit are different by the way. And you could have a return on investment as two examples, okay. But you could have like payback period, you can have your debt ratio, loan to value ratio, things like that. So have key performance indicators. And here's an X point, have written investment criteria. So have investment criteria, which include your key performance indicators, but know what it is you're looking for. And this is really helpful. So if you have a conversation with an agent or property source, and they go, what are you looking for, you can go I'm looking for a two bed, a terrace house in Stockport with a minimum yield of you know, 6.5%. And, you know, you know, that translates into whatever return on investment ratio you're looking for, and whatever net cash flow you're looking for, but it's going to be really helpful in be able to articulate what you're looking for other people and crucially, to be able to judge and decide what is a good investment for you when it's presented to you. So have it written investment criteria is my takeaway there. Then we've got occupancy options, and I use the word occupancy because it isn't always strictly speaking a tenant. So in the rest, if you're looking at a residential property, which kind of most of us probably are, not all of us, but a residential property, your prime choices are a lodger ever lives in your own home, a single tenant on a standard assured Shorthold tenancy, a multi-select tenant, perhaps in an HMO, or short stay accommodation. So service accommodation will be an example of that. So you might stay a night, you might stay a week, you might stay a month, but you don't necessarily lock into a six-month or longer tenancy agreement. So understanding what the occupancy options are for your, your particular investment. And of course, on the commercial, you predominately got single net lease or multi-letter license options there to consider too. And here's, here's my takeaway there is have the opportunity, perhaps to repurpose, so if you're looking at an HMO, what does it look like as a single? If you're looking at serviced accommodation, what does it look like as a single, so always have the opportunity and review the alternative from a repurposing point of view? The next point is stakeholder qualification. Those stakeholders I mentioned earlier are anyone who's got an interest in your property. And so that's, it could be people living in it, it could be people who manage it, it could be people doing work on it. It could be people who are co-investing in it. So do your research, due diligence and checkups is really the point here. So that boils down to what I call having your own eyes and ears on the property and use trusted advisors. So if you're, how do I spot this if you're using a managing agent or letting agent then check on what they're doing? manage the manager. If you're getting somebody in, it's a bit premature, because until that projects, but I won't drift into projects, but you know, have trusted advisors if you can't get there yourself. So if you're remote from the property, have an independent, trusted advisor, someone you trust who is independent, the person performing the service for you. It could be using a service-like view but it could be using A local friend or property connection that you have who just goes in now and again and checks on things for you. But the background, things to be careful of or be wary of, is to check reputations, take references, check on memberships, and do physical inspections. And all of that can be summarized in the phrase trust, but verify, okay, to trust the verify when dealing with stakeholders, anybody connected with your property?
Well, the next key category is the tenant. So having said occupancy options can vary. If I use the word tenant, I actually mean occupants. And so the first thing to be mindful of is tenants are our customers. So a lot of people forget that there seems to be a hierarchy. I'm a landlord, you're a tenant and a hierarchical relationship. Actually, I see that not in that way at all, I see that my tenants are my customers, I need to serve my customers. And if I serve my customers, then they will serve me. So there's this sort of symbiotic relationship between a tenant and a landlord in my world. And I suggest you have that similar approach that if you treat a tenant as a customer, you're going to do okay. And, of course, our properties are their homes, they live in the homes, in our properties, and there's a home. So it's really important that the standard in which we leave the property is under come on to that in terms of property management is safe, decent, habitable. But when we're dealing with tenants, we need to reference them, we need to vet them, we need to undertake inspections. And, you know, those are the main things we need to consider. And that's by respect. But we also need to stay current with the rules and regulations. And believe me, there are lots of them, I think somewhere between 70 and 120, different rules, regulations, laws, etc, that we need to be aware of Robert as a landlord. And of course, if we start drifting into things like HMO, or service accommodation, that is just going to increase the level of complexity and compliance that we need to be mindful of, which does bring into mind, things like training and accreditation schemes. So do seriously consider getting trained or accredited, perhaps with one of the landlord bodies if you as particularly, particularly if you're looking at some form of self-management. And guess what that cues me up to talk about management. And so with management, we've got a number of options, the straightforward choices are whether we do it ourselves. And that's self-managing, or whether we outsource it, which is usually giving it to a letting agent. So there, you know, this seems a bit black and white. But essentially, there are two main options. And there is a third option, which is, you know, in-house management, so the sort of doing ourselves, but we actually delegate the work to someone who works for us. So that could be a part-time property manager can be a full-time property manager. And, you know, that probably only comes into play when we get to reasonable size and scale, where the rental income is going to justify the expense of employing somebody. So that would be the delegated option. And I guess the things to consider how, you know, whether we want to be an investor or landlord, a landlord is hands-on DIY dealing with tenants and toilets, etc, essentially, whereas an investor looks at their property as an investment, and perhaps, you know, values their time and, and doesn't exercise. Yeah, well, actually, you know, what, I'll probably, I'd probably, you know, rather spend my time doing this, that or the other, and I'll pay somebody else to do this for me. So decide whether you're going to be an investor or a landlord, value your time, whether you're actually spending your time yourself, or not get up to date with the regulations and the rules, and whether that's for you to administer or whether it's to you to manage the person who's administering things for you. And that takes me on to my final point, which is responsibility versus accountability. So we are always accountable for what happens in our properties. We can delegate responsibility and ask other people to do things on our behalf. But we are always accountable. So that means if something goes wrong, it's still our fault, at the end of the day, so keep that in mind. So even if you're using a letting agent, do not let them get on with it, manage the manager manage the agent. So remember, we retain that accountability and there could be some serious consequences. If we let that go and something happens, you know, to the property or to the tenants, God forbid.
The sixth point is about property management. And so, here is about you know, thinking about things like this is you know, we need to look after the property there will be repairs and maintenance that needs to be undertaken to the property on a regular basis. We also need to recognize that we're, you know, these are people's homes, so we need to provide them with a safe, decent, and habitable place to live. And that means keeping up to date and you know, dealing with problems that arise we need to plan in for updating the property, replacing things in it, like boilers, carpets, white goods, and also ensuring the properties, you make sure that it's well protected in case something goes wrong. And that's whether there is something serious like a fire or theft, but it's also for things potentially like malicious damage, you know, the tenant could destroy things in the property, and it'd be good to have that level of cover. So the takeaway phrase, there is decent homes for decent people to live in. And the final point on managing properties is operating as a business. Yes, I said that earlier. So that means keeping our paperwork in order, making sure we're compliant, registering with HMRC. So we declare our taxes registering with the Ico the Information Commissioner's Office, so that we you know, we keep people's data safe, and having regular, so up to date Gas and Electric electric tests, and those sorts of things, but equally to use, you know, systems and technology. Now, a system is not necessarily a piece of tech, it can be just a method of recording things. So it could be a lever arch file could be you know, paper, and a pen, a notebook, and a journal. It could be those sorts of things but have systems in technology to be able to record, measure, track, and notify us. So notifies means it's probably got alerts, you know, data alerts, etc. When things need to happen, like the annual gates, gas safety certificate, things like that. And do review investment performance periodically. And I suggest annually, you might want to review it more regularly, especially, you want to check you've got your rent coming through more regularly than annually. But you want to review the investment performance annually, you want to review the cash flow and come on to cash flow in a future episode bit more regularly, probably every month. And I guess the takeaway phrase is to be professional in your operation. So there we go. That's managing properties. The next sub-point is really managing projects, similar points, really. So hopefully, I can condense them down and just talk about the variation. So we'll start with location, yes, the same thing. So we need to look at the investment fundamentals for the location. If we're managing a project, now, a project could be work, we're undertaking on a kind of rental property, so we could be, we could be refurbishing it, we could be extending it, for example. And so that's kind of a small project. That's not really a development project. But if it's a development project, where we're converting something, you know, to converting a building into separate units, or we're building something from the ground up, then we do need to look at the investment location. And we need to look at it perhaps in a slightly different light, because we were probably going to exit that project, maybe by selling those units. And so we're looking at the sales market rather than the rental market, perhaps. So the investment fundamentals will vary slightly, but there be some common elements to what I said earlier, I'd suggest in that case, looking at the average time to sell, as well as rental criteria.
The second point is running the numbers, of course, it is running the numbers. So the thing with running a project is that we've got time, and we've got budget issues going on. So we normally have and they both cost money. Fundamentally, time and budget cost money and budget obviously cost money, but time equals money, particularly if we're financing things. And even if you say well, I'm not financing, it's just my own cash, you know, or something like that. Well, time, you know, before you get your rental returns increased or you get you to know, get your money back out by refinancing is still got a value attached to it. So keep that in mind. And so both time and budget tend to overrun basically. So plan for that have a contingency that allows you to cover off those two, let's, you know, elements that can increase the cost of your property project. And so what I tend to do is a plan for a best amid and a worst-case scenario. Hopefully, you get those judgments, right. But investment and worst-case scenario, and if you can live with a worst case, then you probably do it. Okay. And if you get the best case, fantastic, equally have an eye on the financing. And one reason I'm talking about this is to have the right type of financing for the project at hand. So if it's a short-term project, you probably need short-term financing in place, in other words, so that could be bridging finance, for example, or bringing in fire private finance on a short-term basis. This brings me on to the next point is are you using your own funds? Or are you perhaps you know, you taking the opportunity to use other people's funds on this project and to give them a return. And so you're considering the trade-off with let's say, expensive traditional financing versus maybe it could be expensive for the people a private investor financing, but it could be, you know, time and ease of dealing with private investors perhaps versus bridging lenders, but equally, you know, bridging has definitely got its place. And in terms of key performance indicators, you know, they're going to be similar but They would have been much more relevant to have running a project and his particular case, it's more of a short-term focus. One of the things that I want to bring in here now is the issue of risk, and risk and return. So when you're looking at a project, and even if that's, yeah, even if it's a refurbishment type of project is, there are some risks. So if it's more of conversion or ground-up development project, you've got development risk. But even if it's an extension project or reversion project, there's still development but with a small d. And so you have development risk that you need to take account of, that could be planning risk, if you're going for planning, whether that's permitted development, or whether it's for planning, there could also be market timing risk. So in a project, you're in the deal, you're in the project for a period of time. And usually that period of time is least months, if not a year or two. And so what is the market going to look like when you finished your project. Now, if it's a couple of months, probably hasn't changed very much. If it's a couple of years, it could change quite a bit. So you need to price in the cost of the risk in your return expectations. In other words, with managing projects, you need to consider your exit options. And primarily, you're going to exit either by selling, renting, refinancing, and renting or I mix and match essentially, of those particular things depending on how many obviously you can't mix and match if you've only got one unit. But if you've got multiple units, you can mention that mix and match, potentially, you can sell some keep some, etc., and do consider whether you pull some of your money out as well by refinancing. stakeholder qualification, same, as I said before, effectively, and that's really trust, but verify. So I'm not going to repeat that. You need to think about your target buyer. So if you're if it's a project where you're selling, that, of course, you're looking at who's going to buy this property. So it's not a tenant that's going to be occupying it's a buyer, and homeowners have different expectations to tenants. And so, therefore, your end product needs to be geared up to that particular audience. So that particular target, and then also consider how you're going to sell it off-plan. Are you going to build a show home? Are you going to have visual plans, brochures hoardings, or use a sort of 3d render? Are you going to engage an agent earlier on? How are you going to sell it? So consider that and obviously, if you can reduce the time, it's time to sell by getting, you know, ahead of the curve in terms of marketing the property is going to reduce your overall time in the deal. And that's going to reduce your overall cost in the deal.
And, you know, when we're talking about managing properties, we're talking about property management. But here with managing projects, we're talking about project management. And so with Project Management, you know, the key points are to consider the track record of ourselves, and also the people on our team. And so we need to consider the experience of the builder, the professionals, the trades, anyone who's involved in project oversight and inspected the property as well. So project as well. So that could be us, but we could buy in that resource, we could borrow that resource, we could partner with that resource. So I think the key thing is to know our own limits and to not bite off more than we can, we can chew. And as we grow on often we do, we can grow perhaps incrementally. But we can match our growth to our experience level and stretch a little bit outside of our comfort zone without stretching the elastic band to the point of breaking point. But equally, we can borrow the experiences alluded to, by perhaps working with other people in some way. So just consider the experience as a track record of the people around us and ourselves, of course, equally operating a business very much the same as with managing properties. So we're getting towards the end now. So in just kind of drawing a conclusion we've got managing the portfolio as well. So from a time horizon point of view, bearing in mind, this is a portfolio probably of rental properties, it's a long term time horizon is probably measured in that in decades. So similarly, we're going to run the numbers. Okay, so we need a method to run the numbers for our portfolio. So obviously, when you look at an individual property when you take it on board, you're running the numbers from that investment point of view at that point in time. But as we start to own properties, and develop a portfolio, we want to be able to run the numbers for the entire portfolio, then we start to consolidate things into a central place. And that might include things like having them on a spreadsheet or a system, which totals and averages and gives us you know, sort of a tracker system if you like or dashboard type of approach to managing our portfolio as an overview so that we can then drill down into individual properties, measure the performance of the particular properties, perhaps over time, perhaps on an individual basis, and we need to have some kind of review system so that we can check on things on a periodic basis. I would suggest annually, it's some people might prefer to do it more frequently. What I do in my own case is I review my entire portfolio annually runabout tax return time. But I review individual properties within my portfolio when there's a trigger moment. And those trigger moments tend to be on retail hunting or refinancing, typically. So I have a couple of trigger moments. And then I have more of a sort of an annual review system in my own case and have criteria upon which to measure the performance. So I just use a traffic light red and green system, which, you know, I can color code my portfolio performance, red, Amber green, according to my investment criteria. Green means it's probably okay doesn't mean necessarily leave it alone, but it's probably okay. And that means it might need some attention, maybe not now, maybe down the track. And red is getting there now and sorted out.
So there we go. And I asked myself this question, whenever I do a review, is it serving my purpose? That's the second point, is it serving my purpose? And so I consider whether it's serving my purpose in terms of the returns, whether it's income or capital, is it serving my purpose in terms of equity and debt and borrowing levels, if not more debt is borrowing levels. And I always ask the three R's question. Can I repurpose the property for another purpose, obviously, so that could be reclassifying it or repurposing for different tenant type? For example? Could I release some equity? So has the equity gone up? Do I want to refinance and release equity? for maybe you know, other investment purposes or even to just take it back? You know, and diversify into different asset classes, for example, I do want to redeploy it. So redeploy, really, in this sense means do I want to sell the asset? Do I want to sell the asset Cashman chips in, and then maybe utilize the equity that I get back in my hands. Obviously, I'll probably realize a tax bill at that point in time as well. So keep that in mind. But I do often review my properties and decide whether I want to keep the owner redeployed. So ask yourself the three R's repurpose, release, redeploy the equity in your individual properties. And obviously taking account of the putting the entire portfolio, then we need to look at property management, perhaps now in a different light. So once we start talking about portfolio, we need to consider things on a sort of global basis, I can say that on a consolidated basis. So things like repair replacement costs are going to start accumulating costs of updates and refurbishment and significant replacement costs. So you know, might need a new roof after a decade might need a new electrical system or a new gas central heating system. So the repairs, renewals or replacements, and refurbishment expenses will naturally increase with a portfolio and naturally increase with a longer time horizon. So keep that in mind. But also look at the management options. So we might have been happy to be a DIY landlord or use exclusively less agents. Well, as our portfolio grows, and we add the number of units, we are adding units to our portfolio, there may be the option to bring things in-house. And that's exactly what I've done. Now. I've got a part-time property manager, where I've got a concentration of properties. And, and that works quite well for me. So I have some new words. For me, it's probably better for me that in that particular case than having a letting agent, but I've got a concentration of properties that can help fund and justify that expense. And it probably becomes quite a number of units quite or at least a quite a different level of rental income, before you can patch justify that kind of overhead. And funny enough will probably already know, because we've already had a conversation with the panel on this. So I know what they have to say on that. So once I won't spoil it, I'll let them share what they have to say about that. The other thing with the portfolio is we need to be more strategic with our financing. So what does that mean? It means looking at the loan to value across the entire portfolio. And when we're looking at across the entire portfolio, we might think we want an average loan to value. But within that average, we might say 70% 60% 50%, which would be a nice buffer against, you know, perhaps market crashes, for example, God forbid. But there may be some properties where we've got zero debt, and some properties which are at the maximum, you know, of our loan to value. So it doesn't have to be that every single asset in our portfolio who's got a 65% loan to value, for example, we can mix and match there, but we look at things globally. And then we just take a view about how we want to allocate the debt across our entire portfolio. And it could also give rise to different financing options as well. So we could look at financing the entire portfolio with one lender, but I probably wouldn't recommend that. One or two lenders give you high concentration risk with a lender so I'm not sure I go with that option and probably spread it around a bit. But it does allow you to have things like portfolio topics I want to call it a hunting license. Yeah, you can actually have a top slice of your equity available to draw upon as a facility to go and bag, a particular bargain at some point in time. So it does bring into play different types of financing options.
The other consideration is risk or risk management, risk management mitigation, actually. So we need to have things like a contingency fund, which could be an actual cash fund that we set aside for sort of expected unexpected things. So there will be things that happen, you know, we need to replace a boiler now, and again, that's an expected unexpected cost if you like. So we need to have a contingency plan or contingency fund for that. Some people don't actually do it, they go, Well, I've got equity in my property, I can release it if I need it, or I've got a bunch of credit cards, which we've got no balance, and you know, I can call upon them if I need them to. I'm not against those ideas, it's just that have a plan is really the point. The other thing is that we from a risk point of view be ideal. If we can diversify, we can diversify in a number of ways. We can diversify. By having different tenant types, we could diversify by investing in different locations, we can also diversify but not being exclusively invested in property and having investments in different asset classes. So as we mature, these are the sort of things that we start to consider. And obviously, during the pandemic, I had about four different property income sources, some suffered more than others. But you know, the fact that I was diversified actually helped me. So just something to keep in mind. Another thing that people don't always think about is asset protection. So that is things like insurance. And these things like keeping things up to date. It is things like having it diversified and having assets in locations which you've got strong legal protection, let's say, of title and are interested in the property. So consider the asset protection side of things to equally interest rates. We were in a historically low-interest-rate environment at the moment, but it hasn't always been that way. So keep that in mind and whether you want to fix and if you want to fix long term, so that you don't have any nasty surprises to deal with. And plants, the cycles, there are economic cycles, and there are property cycles, and they come around like clockwork, so plan for them, there will be ups and downs, highs and lows, opportunities to get in opportunities or not opportunities, actually threats that we need to be mindful of. So keep that in mind. And, again, finally, operating as a business, as I mentioned, there were these common points. So in the context of managing a portfolio, that's considering things like ownership. So probably when we get going, you know, sticking an investment in our name is what most people would consider. But if you're thinking of doing this for the long term, and be thinking of having multiple properties, or multiple incomes, or you are a higher rate taxpayer, then you at least should look into investing through a company structure. And you might consider doing it sooner rather than later. But you know, there's a balance to be had, I know people, you know, you, you can earn basically 50,000 pounds as an individual and still remain a basic taxpayer. So if you're a couple that's 100,000 pounds before you have to pay a higher rate tax. So going straight into incorporating or running for a company is not necessarily the right thing to do for all people. But if you've got a long-term time horizon, you want to retain more of your income. You know, instead of paying income tax on it, you pay perhaps a lesser rate of corporation tax on it, you can reinvest those profits, then at least consider incorporating or running through a company. But there's a trade-off there. Because running financing for companies is actually more expensive, and not as straightforward as it is perhaps we buy select for an individual's name. And don't forget the use of trust structures as well. That's perhaps a little bit advanced for your first bite elect. But if you think because my next point is all about exit and the legacy, so what is your exit plan? What is your legacy plan, this is where things like trusts, or companies can actually come into play, or even pensions actually. So if you're thinking of, you know, trying to pass on your legacy, your assets on to the next generation, you need to be having the conversation, the decent tax advisor about incorporation about trust about the use of pensions, and Wills actually, so these are the sort of topics that you need to consider. And the other thing to consider, of course, is taxation. So taxation in the context of income tax, but also capital gains tax, and in and also income tax, corporation tax, capital gains tax, or an inheritance tax. So they're basically there will be a tax take somewhere along the line, and you need to plan for that and prepare for it. I'm sure there's much much more I could cover. But we're already about 40 minutes in so I think I'll leave it at that for today. We're Gonna have the panel discussion to follow up on this, but hopefully, that sets the scene a little bit for you in terms of managing properties, managing projects, and managing your portfolio. So I guess all that I should say is the show notes for today are going to be over the website, the property voice.net. If you'd like to talk to me about anything from today's episode, you can email me the podcast at thepropertyvoice.net. And I guess all that remains to be said right now. He's thanks very much for listening once again this week, and until next time on the property boys podcast.
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Transcribed by https://otter.ai