Property Portfolio Analysis Tool Tutorial

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Genius Property Portfolio Analysis

If you’re reading this, you’re interested in getting more from your portfolio.

You’ve probably had a look at the spreadsheet and wondered what you’re looking at.

In this article we'll break down every figure for you so you have a better understanding of your “profitability”.

Let’s take a look at some fundamentals:

1. Ensure you fill in as much detail as accurately as possible.

2. ONLY fill in the gold sections, do not edit the green areas.

3. If you’re unsure about which details to enter, feel free to call us!

There's a variety of ways to assess your profitability, mostly because differing property types in different regions can have an effect on what's profitable. For example, properties in the South have typically inflated in value more compared to their Northern neighbours. Meanwhile, the North benefits from much higher yields than the south.

So it’s important to appreciate that profitability can be defined in various ways.

Contents

- Inflation (%)

- Profit Margin (£)

- Gross Yield (%)

- Net Yield (%)

- Equity

- Net Yield Based On Equity (%)

- Equity available at 75% LTV

Inflation (%)

This is based on the increase in value from your original purchase price. Properties in the South and London have historically benefitted from house price inflation which has far out-stripped wage inflation.

As much as house price inflation in London has been increasing at a stable rate, the next few years could be interesting as many investors are starting to look at places such as Manchester, Birmingham and Cardiff; the inflation in these areas has been getting more significant. It makes sense since many people are out-priced in the South and London, in addition; many large companies have began to move their operations to other parts of the country.

Profit Margin (£)

This is the pure profit from the property, this figure will closely resemble the "net profit before tax" figure. It's a good indication of profit as it factors in costs such as maintenance, ground rent and agency fees. Much like the difference between Gross Yields Vs Net Yields, this is a more accurate indication of your profitability in terms of your cash flow as opposed to your gross rental income.

Gross Yield (%)

Many agents market properties to investors with great returns.... but these are usually Gross Yields and we'll discuss why these aren't accurate indications of profitability.

Gross Yields offer as much indication as the turnover of a business, which isn't an accurate representation of your actual profitability.

You'll often see HMOs and new build properties being marketed for their high yields but usually that's not the whole picture. For example, HMOs typically carry high yields but it's important to appreciate HMOs carry high maintenance costs compared to a regular family-let property. Cleaning services, high turnover in tenants and even agency fees will reduce your profitability but won't be represented in your gross yield.

Another example of why Gross Yield's aren't reliable is with New Build Developments. Large building companies are notorious for their high charges for ground rent and service charges. They advertise the high Gross Yield as this figure doesn't take into account these extra costs. The Net Yield figure accounts for all costs which we'll be discussing in the next section.

Net Yield (%)

Compared to Gross Yields, this is a much more accurate representation of your profitability as this takes into account the various costs of renting out a property. Be sure to inquire with agents about any potential costs of owning the property as these costs can significantly reduce your actual profitability.

If you notice a significant difference between your gross and net figures, it may be time to think about making some changes in your portfolio.

Equity (£)

Quite simply this is the value minus the mortgage value. This may not be of any interest to landlords who aren't interested in selling properties from their portfolio, however if new opportunities arise it's important to understand how much cash you can release. Always be sure to keep in mind the costs of selling a property if this is something you're interested in doing, such as legal costs, agency fees and potential tax liabilities.

Net Yield Based on Equity (%)

A quirky way of understanding how hard your money is working for you.

The great opportunity investors have with property is the ability to leverage their funds, e.g. using other peoples funds to make money.

Lets take a look at an example:

• Purchase Price of £120k

• Deposit of £30k (75% LTV)

• Assuming all income and cost from this asset is a net income of £200pcm.

• Your £30k investment is earning you a return of £200pcm

• As opposed to a typical 2%-4% return from a savings account, your £30k investment would be yielding 8%.

Equity available at 75% LTV (£)

If you're an aspiring landlord looking at increasing the size of your portfolio, this is key to understand, many lenders offer great rates at 75% LTV. Many landlords will capital raise to 75% LTV, you can look to capital raise to 80% but there's much fewer lenders in this market and also the cost of funding at the higher LTVs can sometimes outweigh the benefits of an additional 5% of a capital raise.