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Below, we're going to dive into the importance of running the numbers on investment property and why it should be a top priority in your investment strategy. By considering different scenarios, conducting stress tests, and keeping an eye on key financial indicators, you can set yourself up for success in the competitive property market. Let's get into it!

Assessing Affordability: Are You Ready for Stormy Days?

Investing in property isn’t all sunshine and rainbows. You have to be ready for both the sunny days and any storm clouds that might be on the horizon. That's where running the numbers comes in handy. Running the numbers will help you determine if you can afford an investment property, even when things get challenging, like when interest rates rise, maintenance costs pile up, or vacancies happen. By being prepared for potential risks, you can make smart decisions and plan for financial uncertainties with confidence.

Conducting Stress Tests: Putting Your Investment to the Test

Want to gauge the resilience of your investment? Conduct a stress test! Stress testing is a bit like putting your property through a tough workout to see how well it holds up. By simulating worst-case scenarios and thinking about factors like increased expenses or reduced rental income, you'll gain valuable insights into your property's ability to withstand financial pressure. Being prepared empowers you to navigate uncertain times and respond like a pro to whatever the ever-evolving market throws your way.

The Most Important Numbers to Watch

In the world of property investment, there are certain key numbers that require close attention for top-notch performance and profitability. Here are a few important indicators to keep an eye on:

• Market Rent: Stay on top of market rents to keep your rental income competitive and maximise your returns. While you can only increase rent once every 12 months, we recommend proactively checking market rents every six months. This approach will help you remain well-informed and ahead of the curve.

• Occupancy: High occupancy rates are a great sign of strong demand and consistent rental income. Keep track of how many weeks your property is rented throughout the year to get valuable performance insights.

• Average Tenancy Tenure: Long-term tenants are gold for stability and reduced turnover. If you have tenants staying put for a longer than average period, that's a positive sign. But, be wary if the average tenure is consistently less than 18 months. This may indicate issues with the property that discourage long-term tenancies.

• Maintenance Costs: Don't let constant maintenance expenses eat away at your returns. A strategic approach to managing maintenance is key to boosting profitability. So, keep a close eye on those costs and make sure they're in check.

Legislative Changes and External Factors: Beyond the Numbers

It's not just about the numbers. Property investors need to keep an eye on external factors that can seriously impact returns. Legislative changes, like the removal of mortgage interest deductibility, can put a dent in your finances. Seasonal rental fluctuations and unforeseen events like COVID-19 can also mess with cash flow and vacancy rates. The key is to stay informed and be proactive. That way, you'll be well-prepared to handle whatever the dynamic investment environment throws your way. 

The Upcoming Election: A Game-Changer? 

With the general election just around the corner, property investors should be on high alert for any potential policy changes. For example, the National Party's proposal to reinstate tax deductibility on rental properties could shake things up, affecting the cash flow for investors with debt and even influencing property prices. Pay close attention to election outcomes and review the various proposed policies now to inform your strategic decision-making.

So, how important is it really to run the numbers on investment property? 

Whether you're a seasoned investor or you’re just starting out, the answer is clear: extremely important. 

If you're leveraging, running the numbers helps you understand if you can truly afford that investment. It's not just about the rosy periods of full occupancy; it's about being prepared for the tough moments, like when interest rates shoot up.

Even if you're not leveraging, you still need to work out if the return on your investment is up to scratch. If not, you may want to consider strategic moves to boost your returns, such as adding an extra bedroom, building a minor dwelling, or renovating. 

Beyond affordability and returns, running the numbers also serves as a standardised way to evaluate and identify the most suitable property to buy. It provides a uniform way to benchmark properties against each other to find the best buy and the ideal price range. Tip: a trusty spreadsheet for assessing income and expenses can be your secret weapon here!

The Bottom Line...

Crunching the numbers on your investment property isn't just a box to tick; it's an essential practice that lays the groundwork for successful investments. By analysing financial scenarios, conducting stress tests, and keeping a close watch on key indicators, you can set yourself up to make well-informed decisions, manage risks, and achieve optimal returns. And let's not forget about the power of legislative changes and external factors; they can reshape the investment landscape. 

Whether you're a seasoned investor or just stepping onto the playing field, remember that running the numbers is extremely important for ensuring the success and sustainability of your property investments.

Want to take the guesswork out of investing in the future of your dreams with step-by-step, personalised investment property coaching? Wolfe Property Coaching is for investors who understand the benefits of property investment, but need the confidence and expertise to do it right. Learn more about Wolfe Property Coaching here.