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Property Management

What Is Property Management? And Why You Need It…

There are two sources of profit from investing in property. There is capital growth, realisable when you sell or when you re-finance, and there is rental income.

It’s true to say, that ultimately most investors are almost exclusively interested in maximising capital gain.

But for someone who is using all the advantages of property investment wisely – gearing, leverage and re-financing – it is the rental income that will make their portfolio ambitions come true.

Maximising rental income is usually what comes to mind when we talk of successful property management. But this is far too simple a definition.

The target is almost always to manage income to maximise cashflow, certainly – but this is done in order to create the circumstances for maximum capital gain.

So, by this definition, we can see that successful management might, in certain circumstances, not mean creating positive cashflow – not, if the capital gains are so high that you need to accept (and it’s well worth accepting) negative cashflow.

Positive cashflow = rental income that pays for or exceds your mortgage payments.

Negative cashflow = rental income that falls short of your mortgage payments.

What we would try and achieve in these circumstances is the best cashflow we can over a sustained period.

So keep in mind that the endgame here is always to actively manage in order to keep you invested so you can achieve capital gains. High rental income is not usually the end in itself.

The ways of maximising income are not always as straightforward as they might appear. For example, you may not have considered that lowering the rent you charge on a property might actually increase your cashflow, either on one property or on your portfolio as a whole.

Successful property management is, however, about more than simply raising the cashflow of every property you buy to cashflow positive.

But even if it was possible to manage your portfolio using the strategy of only accepting cashflow positive investments, and you adopted it, you’d be missing out on great capital gains because of it.

Think of markets where capital growth is exceptionally strong – think many of the markets of central and Eastern Europe – but where cashflow is going to be weak.

This is essentially the way markets work – very strong capital growth equals much weaker rental income and probably, therefore, weaker cashflow.

So, good management, which is ostensibly about month to month management, is actually management that leads to maximum capital gain, however this might occur.

Good management can achieve this in two different but parallel ways:

First, by carrying out actions to maximise cashflow that allows you to stay invested and to therefore maximise capital growth profits.

And second, good management should be about long term planning, or managing your portfolio strategically to maximise your ultimate profits and to use those profits in the way you want to.

Probably the best method of achieving both these goals is to learn from experts - and by experts we mean people who’ve made mistakes and learnt from them. People who have been there and done it.

Many of the secrets of maximising profits may seem like just plain old common sense. But that doesn’t mean you will have either thought of them, or, more importantly, done them. As is so often the case, what is common sense seems that way only in retrospect.

Don’t be deceived!

We often come across the kind of attitude that says: ‘Oh, sure, that’s pretty obvious.’

‘So, you’ve done that already, have you?’

‘Well, no, not as such; at least not yet.’

So, where does the common sense occur here then? In the understanding of what to do, or doing it? We’ll leave you to figure that one out.

Of course, when yields are compressed and capital growth is slowing or is sluggish, then optimal property management becomes even more important – because the aim is to stay invested and strong cashflow is the key to this.

Remember, there are two kinds of management – cashflow management AND long-term portfolio management. They go hand in hand.

Copyright © Property Secrets 2007

“Property Management Secrets”
Reproduced with the permission of Property Secrets.

Further information on this topic can be found in “Property Management Secrets”

For extensive, regularly updated information about UK and Overseas property investment and to purchase this book, go to http://www.propertysecrets.net

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