Power of the property portfolio performance review
Thanks to the generosity of a client, we can now talk about how a review of their property portfolio and its subsequent reshaping has seen their wealth grow by a staggering $250,000 in just one year.
Richard and Jennifer Greenwood (names changed for reasons of anonymity) are a professional couple – in their forties – living in a well-established suburb in Melbourne. Their combined household income is over $300,000. They embarked on their property investment journey in 2007. Determined to go it alone, they purchased their first property in 2007, systematically adding to it over the next seven years. Their choice of property was driven by the fact that they were Melbourne-based (and keen to keep an ‘eye’ on how their investments were being managed.)
By March last year they had acquired five properties. These included a:
- Modern three-bedroomed house in Tasmania
- Renovated single-fronted free standing, two-bedroomed Victorian home in Richmond, Melbourne
- Two-bedroomed fully renovated home in South Yarra, Melbourne.
- Modern, one-bedroomed unit in Prahran, Melbourne.
- Four-bedroomed house in Newman, WA.
At the advice of their accountant, the Greenwoods approached Performance Property Advisory (PPA) in 2014 to review their property portfolio. They had recently been stung by a poor purchasing decision in WA that was not performing.
A detailed review of the portfolio determined that the investments were largely Melbourne-centric and three of the five properties lacked the ingredients crucial to generating capital growth and maximising cash flow.
They had taken the principles of asset selection, diversification and geographical distribution to the extreme, sacrificing the core fundamental of shrewd property investing.
A thought-through strategy pulled together by PPA determined that given the ideal location of the Richmond and South Yarra properties (close to the CBD, public transport, amenities) and the fact that they were older style properties; they would constitute the ‘core’ on which to rebuild the Greenwood’s portfolio. The remainder of the properties would gradually be sold off in order to reshape the portfolio with ‘investment grade’ properties.
First to go was the Newman property, which presented the greatest significant risk. Newman was suffering from the downturn of the mining boom in WA and the house had been vacant for over nine months. Without a tenant, negative population growth and a rapidly winding down mining economy, the property was virtually unsaleable. However with the help of PPA, the Greenwoods were able to secure a tenant and as a consequence found a buyer.
PPA also quickly sold off the Greenwood’s Prahran-based apartment (purchased off the plan in 2011) and their Tasmanian property.
We knew early on that Melbourne was heading for an oversupply of apartments and were able to get rid of the property while the market was still relatively strong. In a market suffering from a glut, the property lacked the necessary characteristics for good rental returns and long term capital growth.
The same could also be said for the Tasmanian property. The market was stagnating thanks to a relatively weak economy and negative population growth. Basically the outlook for capital growth was pretty bleak.
These poorly performing assets were replaced by two high quality purchases in blue chip suburbs in Sydney and Brisbane. Given the strong market condition it both capital cities, these presented good growth prospects in the short, medium and long term.
Both were also purchased below market levels in ‘off-market’ transactions (that is, they were not publicly listed for sale). Both were also older style homes on comparatively large land allotments within a 5 km radius of the CBD and in locations in growth phase.
The new purchases, coupled with the sales, saw the value of the Greenwood’s portfolio increase by $250,000 in just one year.
More importantly, we have helped the Greenwoods improve the overall growth prospects of their portfolio and reduced their risk by focussing on high quality investment grade assets across several capital city locations.
As a result they now have a solid foundation to build from and over time we will continue to add terraces townhouses and older style apartments at varying price points in blue chip locations in Brisbane, Melbourne and Sydney when appropriate.