Investing in properties, anyone ?
A typical person normally have different investment vehicles, be it the more commonly understood share markets / mutual funds related , precious metals like gold, silver to favourite of many – property. There have been many advocates and reasons as to why property investment is favoured. Many successful business people like Ray Kroc (founder of McDonald), late Tan Sri Lim Goh Tong (founder of Resorts World, Genting), Donald Trump(successful property developer in US), Queen Elizabeth(owners of many castles in UK), Robert T.Kiyosaki (the authour of Rich Dad, Poor Dad and many other books) are some high profile property investor themselves.
Unlike many other investment vehicles, property investments have some distinctively unique advantages, just to name a few :
1. A good collateral
Typically, banks or financial institutions will accept properties at reasonable valuations, good locations, accessible to amenities as collateral for loans. This is especially true in Asia countries as most banks favoured properties versus shares as collateral.
2. Good hedge against inflation
Land is irreplacable resources. It cannot be multiplied or reproduced. Also, due to increase of building material cost, labour and land cost, property prices tend to go up over a period of time.
3. Powerful leverage tool
Property is the kind of investment people like you and me do not need to have all the cash or capital to own it, it can be borrowed through the banks, or financial institution & repay the loan over a long period of time. Some smart people even able to own or invest in a property without using a single sen of their own, this is term as ZERO DOWN investment method.
Typically, a property investor are looking at 2 type of returns from the property investment.
Capital appreciation
This is the gain when the property prices appreciate over time, in some instances, could be in a matters of 6 months to 3 years, and the average gain could be in the range of 15% – 50% !
However, one area to take note is the purchase price entails all the associated cost of the purchase like stamp duty, legal fees, loan interest, property agent fees, quit rent, assessment, maintenance, real property gain tax, insurance etc.
Some ways of capital appreciation occurs when a piece of land converted to other usage eg. agricultural land convert to business / residential development or a property, normally landed property under construction has just completed.
Rental yield
This is the monetary income derived periodically from renting out the said property to businesses (for commercial property) or family/individual (for residential property, normally are like apartments, condominiums).
Rental return is always calculated as 10 months to make provision for vacancy period between the expiring tenancy and new tenancy on board.
The rule of thumb of the rental yield- in the range of 2 x Fixed Deposit rate or in the range of 6%. (FD rate at the time of writing is 3%).
After understanding the purpose and the return aspect of property investment, we will be writing on some most often used ZERO DOWN investment strategies in the next few series, stay tuned….
I think land investment is the best choice for those who want to make more profit in less time.
Jardin Smith International