Rules of thumb in property investment

My rule number 1 is never to invest outside an area which I don’t know, and I essentially only invest into Klang Valley only. However, what I will do is to give you a couple of pointers when investing in an area.

First rule of thumb: Never buy a property for BOTH investment and own stay.
A very seasoned investor once told me this and it has served me well until today. What he essentially means is that you should keep your emotions at bay, when deciding what property to buy as an investment. Emotions and figures do not go well. Keep your investment strategy based on facts and figures. As brutal as it sounds, you should only look at an investment property as brick and wood, earth and terrain. Square feet and price. So, if you are looking into a development in the area, please determine if its for own stay OR investment. Decide, and then buy.

Second rule of thumb: Capital or cash flow
Let’s assume that your intention is to invest. What are you investing for? Capital appreciation or cash flow? It’s not about the property. It’s about how you want to grow your money. If you are going for capital appreciation, ideally, you should be looking into landed properties. If you are going for cash flow, then focus on high-rise.

Third: Choose what you want – Developer or secondary market
This one will require you to look into your income. You didn’t state whether you are local or a Singaporean. If you are not local, then you will have to consult a local bank to determine what your financing options are like. Regardless of whether you buy from a developer or sub-sale, I highly recommend foreigners to take a loan from a local financial institution. Reason being, you hedge your risk in the local currency. Cross currency investments exposes you to both local risk and forex risk.

As a local, you’ll still need to consult a banker to determine how much you are able to borrow. After knowing all the facts, then determine whether to invest in new developments or secondary markets. New developments tend to tie you down longer due to the construction period, but I won’t deny that the appreciation is higher. Secondary markets are able to give you immediate cash flow returns. Usually, its capital appreciation tends to be slower as compared to new developments.

Lastly: Do your research before buying
Do thorough research of an area. Do not buy blindly because of agents, rumours or relatives. It is your hard-earned money, and if you don’t bother to manage it well, someone else may manage it better AWAY from you. The biggest mistake foreign investors do, is NOT to do research. There’s so much to do. Research into the developer, the project, the current management (if its already completed), the target market, the population, past pricing, present pricing, future developments in the area, amenities, etc.

- by Micheal Tan, www.freemen.com.my