The most useful measures for property portfolio assessment

Equity

According to Simon, this is the first variable he looks at when assessing his clients’ property portfolios.

The property professional explained: “We've seen and heard a lot of horror stories where people leverage themselves to the absolute max[imum], and then just the slightest change in interest rates or the market could literally flip them on their heads.”

For him, it’s absolutely vital that a portfolio maintains a good amount of equity as it basically defines how healthy the portfolio is.

“How much liquid cash [do] they have to tip in if they're going to grow the portfolio—for me, that's the main thing,” he said.

Gross yield and cash flow

Yield is another basic metric that most investors and professionals use when assessing a property portfolio.

There are different types of yield that contributes to the growth of a portfolio, but the gross yield—how much rent you’re getting over the purchase price—is the one that is most often used to evaluate a portfolio’s performance.

“[Gross yield is] how much out-of-pocket you are between the mortgage and the rent,” Simon said.

Cash flow is just as important as equity growth because it is essentially the tool that helps property investors grow their portfolio.

Should you prioritise yield or cash flow?

As ideal as it is to strike a good balance between a good yield and a good cash flow, most people tend to prioritise one over the other depending on their goals, capabilities, and limitations as property investors. According to Simon, as in all aspects of property investment, there is no one formula to determine whether you should chase yield or focus on gaining and maintaining cash flow.

He explained: “Some are nearing retirement and some are starting out.”

“I think the people who are starting out or have a few properties ... for them, they don't mind being out-of-pocket one, two hundred dollars, three hundred dollars a month to own a property.

“[On the other hand], the people nearing retirement ... they want their money in their pocket—everyone is different,” the buyer’s agent added.

As a property professional, he always tries his best to help his clients find a “happy medium” by looking for properties that are always going to experience growth even if the market becomes a bit stagnant.

He said: “[These properties are found in] areas where there's new infrastructure going into it, whether it be trains, schools, hospitals, [or] shopping centres.

“At least, you're always going to have people who are going to want to rent it, and it's always going to have a good reason for growth … Then, you're going to get that happy medium,” Simon explained further.

However, he does encourage his clients to try out other strategies, provided it’s backed up with good education and thorough research. After all, there’s no one path towards success in the field of property investment.

Determine your goals, capabilities, and limitations as a property investor and seek out the advice of property professionals in order to make good decisions and ultimately succeed in the business of creating wealth through property.

His final advice for budding property investors: “ You don’t [want to] ... over-extended yourself. Being conservative in buying property, I would say, is the best thing you can ever do.”

Tune in to Simon Cohen’s Q&A episode on the Smart Property Investment Show to know more about identifying assets that can be subdivided and why it’s important to do your research before implementing specific strategies, as well as the most useful measures to evaluate the performance of your property portfolio.

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