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Property Investment

Property Investment

Why property investment? Property is close to our hearts whether we like it or not. Have you heard many experts say, “Millionaires become millionaires not by saving pennies, but by investing in real estate”?

According to Singapore’s 50 Richest published by Forbes in July 2017, and also reported by The Straits Times, there are over 17 tycoons whose wealths are accumulated from real estate. Among the top 10 richest list, 40% of those people have made their wealth from real estate. Hong Kong should tell us the similar story.  The truth of the richest people in Singapore and Hong Kong, even throughout the world, lead us to think how huge wealth is created by property investment.

Why property investment in Singapore

Read the Singapore private residential property price chart from 1976 to 2017, how many more milllionaires have been in Singapore through real estate investment for the past 40 years out of the ordinary people? Understand the fundamental nature of real estate, it will help you to create tremendous wealth and abundance. Here are some points for why you should consider property investment.

1.Leverage: use other people’s money(OPM)

Property is one of the few investment vehicles where using the bank’s money couldn’t be easier. Buying a large sum of stocks, you must pay 100% with your own money, not by instalment. This is the power of using Other People’s Money (OPM). In Singapore, you can apply for loan quantum up to 80% of either property valuation or purchase price, whichever is lower.  The ability to make a 20% down payment, leverage your capital, and thus increase your overall return on investment is incredible.

2.Capital appreciation

Property is constructed by solid materital which can last for generations. Property market has its cycle. When there is an uptrend market, your property will appreciate as well.  Rental properties normally appreciate in value with inflation. Increased value can mean sale and reinvestment in higher value properties, or provide an equity line of credit to use for other investments. This is the second, and a historically proven, value component of real estate investment return.

3.Passive income paid by tenants

Property can create rental income month after month if you take care of both your home and tenants. Counting into this income, the return of property investment mostly exceeds average stock or bond dividend yields.

4.Inflation hedging investment

Property is built by ever-increasing cost of materials and labour cost on a rising cost of land. Besides, your property rental usually increases with inflation, while mortgage payments on the property remain stable. This increases cash flow, without the increased expense for holding the property. When inflation goes up, it can also mean more renters as mortgages become more expensive for average consumers. More renters increase demand, so rents can escalate.

The inflation hedging capability of real estate, stems from the positive relationship between GDP growth and demand for real estate. As economies expand, the demand for real estate drives rents higher and this, in turn, translates into higher capital values. Therefore, real estate tends to maintain the purchasing power of capital, by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure, in the form of capital appreciation.

5. It’s tangible, less volatile and still safe

You can feel and touch property because it is the high level of brick and mortar. Unlike stocks, bond or forex, property market is much less volatile and emotion-touch. You don’t need to be an academic expert in real estate to start property investment.  It’s safe as houses, you just need stand in the line.

6. Invest in Property is a forced savings plan

Most people lack the self-discipline to put a monthly deposit into our saving account, we usually spend too much and save pennants. Over half of population cannot retire comfortably with accumulating savings and wealth. Buying a property is a significant commitment that you are required to commit to and maintain. It’s like a magic to force you to save your money into your property in form of down payment and monthly repayment. You will always be grateful in the long-run when you don’t give up on it and build future cash flow and wealth.

Essential points to consider if you want to succeed in real estate investment

Some people say that making it rich is a matter of luck, but based on the past market data, and the experience of countless other individuals who have made it, there are certain essential key points that you have to consider if you succeed in real estate investment.

Key #1: Start early – for a longer investment time horizon

There are many benefits to starting early as you would be able to take advantage of the longer time horizon to invest in properties. This is especially so since most buyers would take a loan to finance the purchase of property. The younger you are, the longer the loan tenure you can secure, thereby leading to a lower monthly instalment. In addition, you commitments are obligations are lower. 

Potential homebuyers should start now and consider the following factors:

  • Your ability to afford the house
  • The bank’s willingness to extend a loan to you;
  • You long-term view on holding on to the property

Key #2: Don’t wait to save enough for your dream home – that never really happens

Many of us conveniently and erroneously postpone the decision to invest in a property because we want to save enough to buy the dream property, which usually comes with a huge initial capital outlay… That never really happens.

When you own a property, your property will keep pace with the market(regardless of whether it is going up or down), and if you have (and you should make sure you have) the capacity to hold out during the down market and increasing interest rates, you will likely be able to make a capital gain and accumulate wealth that can be re-invested in better in better properties that come with even greater potential in the long run.

Therefore, it really pays to invest early and NOT wait till you have saved enough for your dream home, which may never happen in the first place.

Key #3: Plan ahead, prioritize – You lifestyle determines how rich you will get

Lifestyle is a choice. It is up to you to decide what you want. Nobody should, or can, force you to invest in real estate if you are not ready. Unfortunately, when we are young, not many of us will realize the benefits of investing in properties. We often fail to plan ahead and more often than not, we squander away our precious earnings in partying and other luxuries.

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