5 Tips Successful Property Investors Never Told You
Is there more to it than rental yields and transaction histories?
We’ve all heard the usual rules about calculating yield and returns; but successful investors have the secret ingredient that goes beyond that: they have acumen and experience. Here are some of the less common secrets that they’ve shared:
- Follow a plan, not your gut
- Buy with a specific type of tenant in mind
- Look at the businesses moving in
- Minimise the number of family-as-co-owners
- Focus on buying low, not selling high
1. Follow a plan, not your gut
Succesful property investors go in with a concrete plan. We don’t mean vague ideas about what they’ll do with the property when they grow old – these people have quantifiable targets that their property asset has to meet (e.g. generate annualised returns of four per cent over the next 20 years, to contribute $X to your retirement fund).
Their plans include specific details such as:
- When to sell (this is usually based on quantifiable conditions, such as if vacancies stretch to a certain number of months, or if the property value falls or rises to a given sum).
- When to refinance
- When to renovate, and how much to spend each time
- Multiple exit strategies
Having a fixed plan, with quantifiable targets, takes emotion out of the picture. If the property becomes a liability later, for example, an investor with a plan will find it psychologically easier to sell.
2. Buy with a specific type of tenant in mind
Successful property investors will case the area, and buy only if they can clearly visualise what sort of tenant would want to move in. This is more important than vague notions like “there’s a coffee shop nearby”.
Consider the following situations:
- If a property is near a university, foreign students unable to find a dorm will be a source of constant demand, even if the area has limited shops or nightlife.
- If the property is high-end, it will mainly cater to expatriates with big housing allowances. That could mean vacancies if the overall economy turns bad, and big companies lower said allowances.
- Properties near high-end restaurants may not mean anything to middle or lower income tenants, who need a cheaper form of dining.
This sort of acumen takes time to develop. But for new investors, a good practice is to ask yourself who would want to live in the area. If you can’t think of a clear answer, you should either (1) consult a property agent, who can “read” the area for you, or (2) rethink your decision to invest.
Some of the most successful property investors focus on a single demographic (e.g. students, expatriate workers at a certain income level), and invest with this group in mind.
3. Look at the businesses moving in
These days, the challenge is finding a mall without a Din Tai Fung
A good way to tell if a neighbourhood is picking up is to look at the businesses moving in. It’s best if you can do this over time, such as note the brands moving in over five years. But even if you don’t have that information, you can look for the following:
- A proliferation of fast-food chains moving in nearby. For example, chains like McDonald’s, Burger King, Kentucky Friend Chicken, etc. don’t usually move into an area until a certain level of foot traffic is reached. For residential properties, their presence could indicate that the area is becoming a hub of some sort.
- Gentrification, with a lot of fancy restaurants or avant garde boutiques setting up in the area. This was what happened to Tiong Bahru, and helped raised prices in the area. It’s also happening along East Coast Road, near the Red House.
- Chain retailers replacing smaller entities in the nearby mall. For example, by 2014 Tampines had become so well developed, chain brand Uniqlo chose to open their first store there instead of in Orchard.
Remember, businesses conduct extensive research on location before moving in. A successful property investor will consider the insight these companies have.
4. Minimise the number of family-as-co-owners
If you need to involve too many family members as co-owners, perhaps its best not to invest. Remember that they all have a say, when it comes to issues such as who to rent the unit out to, or whether to sell the unit.
There are many situations where some family members disagree with a profitable sale – or even worse, move in and decide to use it as a residence (thus eliminating any rental income).
If these are just your business partners, you can at least resort to legal action. But it gets messy when the person involved is, say, your father-in-law, or your aunt who partially raised you.
You can live with them and love them, but sometimes you just can’t invest with them.
5. Focus on buying low, not selling high
When you buy low, you ensure that you have more holding power. That means you won’t be forced to sell during an emergency. On top of that, you also borrow less and hence pay less interest (assuming you make the effort to find the cheapest loan. Consult a mortgage broker).
Even if the property doesn’t sell for as much you hope, you will at least have your finances in better shape.
You could also be facing better odds: if the properties in the area have been $1,800 psf for the past 15 years, and you bought at $1,780 psf due to a dip in the market, all it takes is for you to profit is for things to go back to normal.
Between buying low and being forced to sell low, and buying high and being forced to sell high, the former is the safer course. That’s why successful property investors are more focused on looking for discounts, rather than speculating on appreciation.
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Are you Investing or Gambling?
Property Investment is never about luck or emotional buying. On many occasions, we see consumers hopping from different new project show units just to find “the Right One”. But how exactly will this “Right one” presents itself in the face of consumers?
If you had answered “Ambience” and “Feel” of the unit, you are emotional buying. Many times, these feelings have clouded the analytical skills of the consumers, making them overlook other critical aspects such as the land appreciation, location, sensitive pricing/discounts and market sentiments. By the time when the consumers are prospecting for new house, they will themselves in situation where their current property is not fetching the desired price and they have missed the opportune time to enter the market.
Real investors are clear with their goals and what they want out of their property investments. They do not rely on hope that the market will one day, change in their favour. Rather, they are aware of the cycle and when to make the “Right move”.
So, are you an investor or gambler? If you are determined to be a savvy investor, you will definitely be interested in the following.
How do you Determine the Right Cycle, the Right Time and Right Price to Enter?
At the first, second and even third glance, you may not be able to figure out all the information which this chart is trying to convey. However, if you study in detail or with some guidance, you will be able to mark out a certain trend that is brewing in the market.
Based on this cycle, you can also identify the best opportune time and price to enter the market.
So the Question now is:
Is This the Right Time to Buy in Today’s Market?
Just understanding the cycle is not sufficient.
Here are the 5 Essential Elements which you Must Know in order to build Successful Investment Portfolio in CCR Segment:
1. What are the Impacts of the Latest Announcement of the Reduction in Government Land Sale?
2. Supply vs Demand
Should we buy when the supply is plenty in the market?
3. Location vs Entry Price
Which is more important? Many always think that buying a good location near MRT is the safest bet as it is easier to rent out. However, is that really true?
4. New Launch vs Resale Property
Are you aware which one is likely to drive higher profit margin?
5. How can we secure the First Mover Advantage?
Below Market Value Properties >>