Tuesday, 21 November 2023
BUY PROPERTY THIS WAY
the 5 Golden Rules for property investment
In this article about successful property investing, you will learn the 5 Golden Rules for property investment that will make you a more successful investor. These simple rules and guidelines should be used to minimise the risk and maximise the return. So let’s examine each of these rules for property investing in detail for you.
1. Always Buy From Motivated Sellers
The first Golden Rule for Property investing is that you want to buy property from what we call motivated sellers. A motivated seller is someone who really needs to sell their property. They've got some problem and because of that they're more flexible on the price and/or the terms of the sale. This is because for these people it's not about getting the most amount of money, which is what most sellers want by the way, it's about getting speed and certainty that this transaction is going to happen.
Most people when they're looking to sell a property don't start out as motivated sellers. They want to get the most they possibly can from the sale of their property, but as time goes on people become more motivated. They have deadlines they're trying to hit. Maybe they need to emigrate or they're moving for a job. They could be growing the family, or their family is shrinking. Maybe they've got financial difficulties. They see selling this property as part of the solution to that problem.
Given that one in three sales in the UK fall through, even if someone gets a sale agreed there's a pretty good chance it might well fall through. Selling a property is not a fun or enjoyable experience. If a sale falls through it's really quite stressful.
If you can find these motivated sellers and then come up with an ethical win-win solution, they get what they want, and you can get a much better price or flexibility on the terms of the sale. It's important to understand here that we're not looking to take advantage of people. One wants to find the ethical win-win that works for you and works for them. It is a numbers game. You need to learn how to find these motivated sellers and when you do, you're going to be far more successful in your investing.
2. Only Buy Property in an Area of Strong Demand
The second of Golden Rules for Property investing is buy property in an area of strong rental demand. Sometimes people think they should buy a really cheap property because they think it meets the first Golden Rule for Property Investing. But if no one is going to want to rent that property, then there's no point buying it. So, it's got to be in an area of strong rental demand.
You can check this out by going online, you can see what the rental demand is in a particular area. You can also speak to local letting agents and ask them what they think the demand is like in the area. So it's about doing your research and your due diligence to make sure this is a good strong rental demand area.
Take into account what's happening in the area. Are they increasing the number of jobs? Are they extending universities? Are they building new hospitals? Are they creating business parks that will bring people into the area who want to work there and probably want to live in the area as well?
If you can buy in an area with a growing population you're going to have much stronger rental demand. You're going to also see better capital growth over the long-term.
3. Only Ever Buy Property That Gives You Positive Cash Flow
Out of all of the Golden Rules for Property Investing, I think this is the most important one. What this means is, at the end of the month when you get the rent and take all the other costs away, there must be some profit left over for you.
Possible Costs:
- Mainly your mortgage
- The insurance you need
- The management fees
- Leasehold fees
- Maintenance
- All the bills if it is a Serviced Accommodation.
If there's no cash flow, no profit, then don't buy the property. That's not going be an asset, it could be a liability for the future. An asset is something that puts money into your pocket, a liability is something that takes money out of your pocket. Now with a rental property obviously you have a mortgage, but the whole point is you're putting tenants in for more than just covering the costs. You want them to give you some of that profit every single month.
You do need to pay tax on the profit, you do need to declare it to the tax man but it's in the same way if you have a job and earn an income, you pay tax. If you have another business that makes money, you pay tax on your profit. So it's no different to anything else. The rules around taxation may change so it’s best you speak to your accountant to understand how that might impact you.
A lot of people prior to that used to buy property in their own name, now many people buy within a company structure because it's more tax advantageous. But really you should get independent advice from a property tax specialist. They can look at your personal circumstance and give you the best advice and guidance based on your situation.
It's always dangerous to try and get advice on Facebook groups. People might give you advice on what they've done but that doesn't mean it's going to be relevant and correct to you. This is why it is really important you get the right advice.
4. Buy Property for the Long Term
The fourth Golden Rule for Property Investing is to buy property for the long-term. Now you can make money for the short-term in property. You can buy a property, renovate it, and sell it straight on. It's called flipping property and it's a great, very profitable strategy in the right market conditions.
Ideally you want a rising market to be successfully flipping property. You don't want to be flipping property if it's a stagnant or a falling market because there's a good chance that you buy it, do the work, and it's worth less than when you first bought it. So that's not a profitable strategy. However, if you're looking to hold property for the long-term that's generally what I do.
I have sold some property in the past but I like to hold for the long-term. In the UK, one lives on an island with a limited supply of accommodation and an increasing population. This means over the long-term property prices must go up. So, holding property for the long-term, benefiting from the monthly cash flow and the long-term appreciation - that's how you create real wealth through property. Obviously you could then pass that wealth on to your family, to their kids, and their kids, your grandkids, by buying property and structuring it in the correct way.
5. Have A Cash Buffer In Place
And finally, Golden Rule for Property Investing Number Five is very important and it's about having a cash buffer. This is some money put aside. It could be on a credit card, it could be in a bank, it could be someone else's money you've agreed to borrow in advance, just to make sure you can fix any problems that aren't covered by insurance.
Now most of the things in property can be insured against, you know if your tenant runs off and doesn't pay the rent you can insure against that. If the tenant causes damages, you can insure against that. However, sometimes things aren't covered by insurance and it means you've got to spend several thousand pounds on your property to fix it and make it rentable again.
If you don't have that money you can't fix it, you can't rent it, suddenly that's a liability costing you money every single month. This is why need to have some money put aside which you can use to make sure that even if there's a problem you can fix the property. You can get it rented out nice and quickly to make sure it's bringing in money.
Summary
If you follow these 5 Golden Rules for Property investing i.e. Buy from motivated sellers; Buy in an area of strong rental demand; Buy for positive cash-flow; Buy for the long-term; Always have a cash buffer, you will minimise the risk of property investing and maximise your returns.
INVESTING IN SINGAPORE PROPERTY
SINGAPORE PROPERTY INVESTMENT TIPS
By 2030, the population over the age of 80 is set to quadruple… so if you want to maintain a comfortable lifestyle now and in retirement, you’ll need to be self-funded. Investing in property is a great place to start, but as with all major financial decisions, you need to be armed with information before you take the plunge.
Surging prices pose a challenge for the ruling People’s Action Party. Its achievements include the highest public housing rate in the world, with over 80% of the country’s 4 million residents living in government-built homes. Singapore is defying a global property downturn, fueling concerns about affordability within the city-state.
The price jumps are fueled by a shortage in supply due to construction setbacks during the Covid-19 pandemic, and demand spikes from people looking for upgrades and an influx of well-to-do foreigners. Buyers are brushing aside concerns about rising interest rates that have dented property markets from Australia to New Zealand.
The world’s hottest housing markets are facing a painful reset. Interest rate hikes do not seem to have a significant impact on new home sales in Singapore. Property prices are more supply-driven rather than sentiment-driven.
Authorities are taking notice. The government introduced curbs last year to cool home prices that surged the most in a decade. Officials also announced tax hikes on high-end properties during the annual budget this year, and plan to increase the supply of private homes.
Despite a brief slowdown, residential prices have rebounded and grew at a faster pace than expected in the second quarter, climbing 3.5%.
Wealthy locals and high-earners moving to the city-state are pushing up prices. Singapore’s rent surged the most among 30 cities globally in the first half, tying with New York. The nation said last month it would try to woo highly paid expats with a new visa.
Don’t Believe the Hype
Always refer to facts and figures and not the hype surrounding the property or, especially, your own hopes and emotions. Before you dive in, do your research based on the two golden rules and work out if you have sufficient funds to hold onto a property for at least a few years.
Check Surrounding Value
For the most part, units on the same block will share the same problems and advantages. If you’re five minutes from the train station, so’s your neighbour. So when it comes to price, always check listings in the same general area. There may be other variables but you’ll at least get a sense of the price range.
Enter At The Right Price
When it comes to choosing the right property, the star architect’s brand name or even the location is not as critical as the right entry price. This means cross-checking a property’s price against surrounding properties’; if it is lower than its neighbours, that means you’re taking less of a risk and have the potential to make more of a profit.
Popularity Counts
Besides the affordability angle, a property’s popularity is also a key consideration. It has to be sizable enough, be located in a reasonably well-known area and have a strong publicity push. When the market goes up, these are the properties whose prices will double or triple up faster.
Look For Uncertain Times
The difference between newbies and “real investors” is that the former will wait for good times to invest while the latter craves market uncertainty. If the market isn’t good, there will be buying opportunities and interest rates will have to stay low. It can’t go up when the market is down because businesses will have problems and the government will not allow this to happen. As long as you have done your calculations and are not speculating, then you can take advantage of these opportunities.”
Monitor Interest Rates
For investors, home loan interest rates should factor into the buying decision. For example: During the past decade, typical home loan interest hovered around 1.7% (frequently falling to 1.3%). Now consider what happens if an investor uses their Central Provident Fund (CPF) savings to cover such a loan: CPF grows at 2.5%, which means it grows faster than the interest of the loan. It’s almost as if some investors have been borrowing for free.
The home loans market also affects the return on investment. Buy property when the home loans market is at a peak (say 4%), and the capital appreciation of the property gets swallowed by the high interest. For owner occupiers, this isn’t really a factor (you buy when you need to, whatever the home loans market is like). But if you’re thinking investment, look beyond property prices, and weigh in property loans as well.
Make Your Money Work Harder For You
Shrewd investors carefully formulate exit plans: when to sell their property. For example, if today a private property has exceeded its 2007 peak price, investors should seriously consider selling. They should take this opportunity to cash out their profits and they will probably be able to buy more properties. Do not be emotional and just hold on to the property.
Damon Nagel, managing director of property investment advisory firm Ironfish, recommends that investors who adopt a long-term view and strive to build a balanced portfolio will have the most success. Nagel’s three golden rules for investing in property are posted infra:
1. Have a clearly defined strategy
From the outset, adopt a clearly defined strategy and aim to build a portfolio that will meet your objectives. Property investment can be broken down into three distinct phases – growth, consolidation and income realisation – and your objectives will determine the strategy and the types of property in which you choose to invest.
2. Invest where investment is being made
Property in areas where significant infrastructure investment is being made is likely to enjoy strong capital growth and be attractive to renters. “In South Australia, for example, we have hubs where new infrastructure is being built or is earmarked for future investment,” he says. “Look closely at these areas for their long-term potential.”
3. Minimise your time managing your investments
Establishing and managing a property investment or investment portfolio shouldn’t consume all of your time or impinge on your work and social life. “It should be as passive as possible,” Nagel says. “Consider how you get set up your property portfolio in a manner that allows you to almost forget it. This can be achieved by investing in low-maintenance properties and by engaging a competent property manager.”
One final tip? Don’t follow anyone’s advice unless they can walk the walk. “I advise investors to steer clear of advice from people who don’t have their own property investments,”
“The best time to have started building a property investment portfolio was 20 years ago – the second best time is today”.