3 Scenario To Consider Before You Buy A Property For Investment

-

3 Scenario To Consider Before You Buy A Property For Investment




With the implementation of several property cooling measures, the market may seem to be stabilized. The trend of property speculation has begun to die off. However, property investment is not the past. Investors are abundant even though property prices are still at the higher end, whereby several good projects are being offered by reputable developers such as gem residences for sale. The approach between an investor and a speculator is totally different, investors buy to let, while speculator buy to flip. A good investor looks for both good rental yield and capital growth. If you are considering investing in property, here are 3 different scenarios to consider, whereby property agent isn’t telling you.

1. Using your retirement fund for property purchase


Let’s just say you have a sum of money in your retirement fund. And you are currently working with a full time job and contributing monthly to your retirement fund. And you have a sizeable disposable income to pay for your down payment. Your monthly contribution to the retirement fund is sufficient to cover the monthly mortgage rate, thus you do not have to fork out extra cash for payment. With that in mind, the real estate agent claims that you will be living in a condominium for free.

Here are a few details which are not being highlighted by your real estate agent. The logic is basically flawed. Ultimately, the money being utilized is basically your own retirement money. It may come with its own risk factor, whereby if you either lose your job or getting a lower salary during your future job, you will be unable to repay the monthly mortgage. The property may be a stressful financial burden.

2. Rent your property, and using the rental for monthly mortgage repayment


Let’s assume that you had already purchased your first property and living comfortably in it, but are seeking for an upgrade or investment. Assuming you have a sizeable amount for down payment. The property agent would suggest you to buy a condominium, and you can rent out your previous property and use the rental money to cover your new monthly installment for your condominium. By doing this, you will be living in your condominium for “free”.

Here are what is not being highlighted. The logic here may seem to be legit and sound. However, there are two assumptions in deriving this strategy, failing either one would cause the strategy to backfire against you.

Firstly, the rental yield may be lower than your soon to be monthly committed mortgage repayment. This is because many people fail to include several expenses beforehand, such as agent commission, up keep cost, management fee and tax. Once all this factors are to be considered, the actual income yield may be a quarter lower than what is expected.

The second assumption is assuming the previous property will always be rented out. Vacant period to find a potential tenant is not taken into consideration by most beginner investors. In this current market, even the top REIT manager do not guaranteed a 100 percent occupancy rate. If the market is slow, you may also need to consider lowering the monthly rental in order to attract tenant. To be on the safe side, it is recommended to assume the net rental income to be a maximum of eight months from your gross rental income.

3. Buy a condominium and repay the installment using monthly rental yield


This is the scenario every property agent is pitching towards property investor. The story would always begin with paying for down payment, a guaranteed rental yield scheme and rental yield would be used for monthly installment. By doing so, when the mortgage is fully serviced, you will own a property for free.

Fundamentally, leverage is being employed in this strategy. Leverage I layman is where someone borrowed money to make investment with a limited capital in hand. It is a common practice for the current property investor. But do bare in mind, leverage is a double edge sword. It will either be absolute gain or a enlarged loses. At the same time, losses will also be magnified. Assuming, if you pay a down payment of 400,000 for your 1 million property, and subsequently sell it at a loss of 20% at 800,000, half of your initial capital which sum up as 200,000 would be lost. Many new investors also did not add in the extra interest by the time the mortgage is fully serviced.

Property investment is practically a risk management game. The rules are simple, by making decision based on the least risk factor such as interest rate risk, liquidity risk, market risk, policy risk, and job (secure income) risk. A take home note would be, to avoid over leveraging one-self.

Comments

Post a Comment

Popular posts from this blog

IF I MAY CHANGE THE WORLD

-
Image
IF I MAY CHANGE THE WORLD If I may change the world Change? May I, world? Will you let me? Change, word said easier than done Because world is too nice a place to some people But, hell to another. If I may change the world Schools will be at the playground The seesaw can be the chair The swing should be fine When I can learn while playing with my friends Learning can finally be fun If I may change the world How I wish something delicious can taste good What if vegetables taste like chocolate? Mmm.. yummy for my tummy No more forced veggie-eating for me If I may change the world I would cancel plane crashes That burn so bad into ashes MH370 and M17 in my memory now Their names I would never know If I may change the world No one is cutting one tree There would be tree houses in each My exercise would be climbing it up and down From my window, I see sunrise on the horizon From the balcony, I see disappearance of the Sun I open my eyes; all I see is green, all I smell is nature ...
Read more

Test Market Atas Manusia

-
Image
ASSAALAMUALAIKUM WARAHMATULLAHI WABARAKAATUH AHLAN WASAHLAN WA MARHABAN BIKUM.  muja selalu terfikir kenapa orang suka test market. kenapa ejas kalau tak de niat nak kawin? kenapa buat hati orang berbunga kalau lepas tu kita hadiahkan mereka duka? kenapa sepah dibuang setelah disedut segala madunya? bukankah sepah itu masih boleh dibuat kerisik ke hape ke. sedap gak. amboiiiii, ayat muja dah advance sekarang kan? hik3 join jomniaga here for affiliates and money opportunities :D    test itu bermaksud ujian. cer check kamus. tah betul tah tidak sebab someone cakap muja ni kengkonon je bakal ticer. market pulak maksud dia kedai. kena check gak nih. takut salah la kan. yelaa, sapa la sangat teacher muja berbanding segala jenis anon yang bijak bestari. huhuu its depends on niat org tu....maybe sbb blom kawen lg,so that org tu pikir,xsalahkan utk memilih yg lebih baik...so saya nak pesan kt sini,masa tgh kapel tu,jgn la nk melebih2 dgn pasangan masing2....jaga m...
Read more

Ibadah dalam Islam: Ibadah Umum dan Ibadah Khusus

-
Image
ASSAALAMUALAIKUM WARAHMATULLAHI WABARAKAATUH AHLAN WASAHLAN WA MARHABAN BIKUM.  Ibadat dalam Islam mempunyai ciri-ciri tersendiri yang berbeza sama sekali daripada konsep ibadah dalam agama dan kepercayaan yang lain. Antara ciri-ciri tersebut adalah tidak ada sebarang perantaraan antara Allah dan manusia dan ibadat dalam Islam tidak terikat dengan sesuatu tempat atau masa yang tertentu. Firman ALLAH SWT yang bermaksud: "Tidaklah Aku jadikan jin dan manusia, kecuali agar mereka beribadah kepadaKu"(Az-Zariyat:56) Ibadah dalam Islam terbahagi kepada dua iaitu Ibadah Umum dan Ibadah Khusus . Kedua-duanya penting bagi umat Islam untuk dilakukan supaya dapat menjamin kedudukan di akhirat dan menjadi kewajipan seorang hamba kepada ALLAH SWT. Ibadah khusus , iaitu perkara yang wajib dilakukan oleh orang Islam sebagai satu cara mengabdikan diri kepada ALLAH SWT . Ia merupakan perintah-perintah yang wajib dilakukan sebagaimana yang terkandung dal...
Read more