Turnover is Vanity, Profit is Sanity, Cash is Reality
31 March 2023
Hardly a day goes by when a residential landlord is not bombarded by a seemingly endless torrent of bad news about the future of owning Buy-to-Lets or investment portfolios. Residential landlords and investors are leaving the market in droves. Driven away by rising interest rates, ever-increasing costs and the perceived burden of legislative and regulatory reforms.
Sentiment is a strong driver in any marketplace and it is as true in property as it is in the Stock Exchange. Those leaving have reached an emotional as well as a financial tipping point. What began as a passive investment now requires dedicated effort, thought, concentration and money.
Residential property is probably the biggest single asset class that touches in some way everyone who lives in a residential property be that as the owner or occupier. As vast as the residential property market is, it is also hugely diverse, encompassing geographic and economic social differences. Those differences dictate what is happening in any particular segment of the market at any one time and create very different driving forces for a diverse number of reasons.
The London residential property market and the ecosystem that supports local and international investors is vast. From lawyers, tax advisors, trustees, private banks, and accountants to plumbers, electricians, decorators, interior designers as well as the estate agents and indeed residential asset managers like us. The list goes on and it is easy to see how important this market is as a part of the economy of London and the country as a whole from employment to tax revenue.
The stakes involved in reduced lettings could not be higher, not only for the landlord/investor but for the community and ecosystem serving them, London and the UK!
Strategies For Success
“If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much!” - Jim Rohn
So, what is the average residential investor or landlord’s plan beyond perhaps: buy property, rent out property and pay down any mortgage. As a broad plan, it covers the main objectives. However, as the quote from Jim Rohn suggests, perhaps a little more thought is needed to make the investment not only financially successful but also to fulfill the need for peace of mind that a well-run investment strategy brings.
The title gives the maxim of turnover is vanity, profit is sanity and cash is reality.
Turnover – Seeking the optimal rent level and having a strategy that removes vested interests and potential conflicts of interest that may diminish returns.
Profit - Control the controllables and seek to keep costs under control.
Cash - The money in the bank at the end of the year and how to ensure as much of that turnover stays with you.
Lack of action has consequences and relying on outdated thinking has its limitations when it comes to the asset management of rental properties. We all know that we should go for regular checkups with a doctor or check our insurance policies are up to date but how often do we suggest to a client or to ourselves as a landlord or investor to take a look at how effective our strategies for success are performing.
There is a lot of talk about average rents or average yields and if average is good enough then happy days, but if a better return on investment is needed then average just will not do…
Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it”. While some people may question whether the quote was in fact from Einstein, the power of compound interest, however, is unquestionable.
Now is the time to consider and review the gross income, the overheads, the net income and the capital growth of the residential asset and ask yourself if you are achieving the optimal financial performance.
What starts wrong often ends wrong, but it doesn’t need to stay wrong with the right attitude, values and strategy.