Friday, February 12, 2010

How to profit from property investments

Most people will have to make an important decision of buying a property at least once in their lifetime. However, although this sounds basic, not many are sufficiently savvy to spot good deals that could potentially result in greater upside in the long run.

Whether one is buying a property for use or for renting out, there are some mistakes that should be avoided. Some of the mistakes are listed below:

(i) Lack of proper research
There are buyers who don't bother to take some time to see their property and check everything thoroughly before putting their money down. This could be costly when they soon discover that their property isn't what they think it is. Don't let this happen to you.

(ii) Not understanding the fundamentals
Owning a property also includes settling the legal issues, the taxes (i.e. stamp duties), the maintenance, the renovation, etc. It's not like a stock where we just buy and keep, nor is it like a computer device that can just plug and play. There are many "after-effects" of buying a property. Then again, this extra effort is what makes property investing more profitable than just blindly investing in stocks.

(iii) Decision made based on the opinions of agents
Of course, agents can give valuable advice with regards to the property. It's my belief that most agents will say only the good things if no questions are asked. Just like stock analysts, they could give valuable advice in their analysts' reports. However, at the end of the day, the decision to buy lies on the buyer, who will decide if investing in this particular property is good for him in the long run.

(iv) Negotiation
I have to admit I lack this skill, which I sorely need to improve. Buying a property requires you to deal with developers, vendors, contractors, sellers, bankers, etc. Good negotiation skills can help you secure better deals; you don't want to be at the losing end for such big money ploughed down right?

Several factors needs to be considered when one decides on buying a property. This includes the price of the property and the subsequent interest rates of the loans (unless you are super rich and can afford the whole house).

The type of property bought is also an important consideration, as well as the use for it. Is it a mid-tier or high-tier property? Is it for self usage or rental? Or is it merely to function as a mega storeroom? Or a small office?

Location plays a part as well. Accessibility and amenities play a part in determining your rental yield or future selling price.

One thing is true for property though. Speculation is a dangerous game. Sure, you could earn a lot in the bull run from 2006 to 2007. However, if you were caught suddenly in the sub-prime crisis with such an illiquid asset, you could be bankrupted. It would be advisable to buy properties based on a investor's point of view; treat it from a business perspective. Access the future valuations, and the possible rental yield, return on investments, etc. And lastly, do not chase the market.

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