7 Myths About Property Investment

Myths is defined as a widespread but untrue or erroneous story or belief; a widely held misconception; a misrepresentation of the truth. Also: something existing only in myth; a fictitious or imaginary person or thing.

We often hear remarks like “Mr. X becomes very rich because he invested in property. He is very lucky to make huge profits from his investment” Majority of the people believe that lucks play a major part whilst other due to analysis paralysis believed that it entails high risks or the timing is not right to invest.

However, the truth the truth of the matter is these beliefs are simply myths. You can build a strong and workable property portfolio of your own with in-depth studies and research. For years now property investments has been proven worldwide to be an excellent opportunity to create sustainable wealth when portfolios are managed well.

The returns from the property invested will then be able to financially support you in your retirement years.

Let’s dwell into some of the most common myths related to property investments.

Only the wealthy can afford to invest

Many people believe that “You need money to make money” and only those who are wealthy can afford to invest in properties.

This is not true because you do not need a lot of extra money to invest in property. To some extent savings do play a part but there are many other ways you can explore such as collaborations to invest with your family members or friends, source for no money down deals, invest through investors groups or if you own an existing property you may check with the bank on refinancing i.e. leveraging on your own home and the list goes on.

Debt is bad

Our previous generations including my parents believe that all debt is bad. But in actual fact, debt is good if we used it wisely to buy more appreciating assets. You need to manage the debt wisely so that you will not end up in default and faced bankruptcy. This can be done by having a realistic budget..

All property goes up in value

Take note that there are always the so professed “gurus” in the market who will tell you that whatever property that you buy will always goes up in value. They will advise you that no matter what you buy there will not be any risk in buying the property. Their message is to buy anything and it will eventually go up in price and value. But we know from fact that this is not true all the time.

But you have to bear in mind that historical performance will not be a good indicator of future performance as market is a dynamic animal. Different areas have different supply and demand. As in the Law of Supply and Demand, when supply is low and demand high, property prices are more likely to increase over time whilst when supply is high and demand is low, prices are more likely to go down or decrease in value.

As modern lifestyle changes traditional areas with schools, market, parks and commercial centers may not be an attraction compared to new areas with shopping centers, medical centers, colleges and enhanced transportation links such as MRT, LRT etc. The other undesirable infrastructure such as prisons, changes to flight paths or garbage incineration area may decrease the value of the property. It can be seen that there are many reasons a property may decrease in value. Hence an in-depth study of the area and surroundings risks factors should be taken into consideration when buying a property. Hence, an updated map is always is an asset to have.

As a property investor, understanding of the property cycle is very important. A good property investor makes money in every market by knowing the current market and how to make money.

When the market is booming, everyone makes money and even bad investors who do everything wrong makes money too. The fact is, it is the market that made them money despite their investing mistakes or errors that they might have made

A lot of property investors think that a property boom will continue forever when they continue to make money but in fact it never does. In general the boom phase is generally a shorter cycle. Experienced property investors know that property market moves in cycles and they will use it to their advantage and to make money in ALL market be it during the boom years or the down or slump period.

Property investment does works in ALL market. Do your due diligence and understand where you are in the market phase before you purchase a property and make sure that it is not overprice so that you won’t ended up having a hard time to source for funds to finance your properties or sell it off later.

All Property Is an Asset

Most of us always assume that property is an asset as prices will always increase over time. This may be true to a certain extent however if that asset or property is not generating cash flow that is you need to continually set aside funds to pay for it then it will be a liability. The same can also be true if a property be it a shop or condominium you bought but cannot be rented then it is a liability as it reduces your cash flow i.e. you have to incur additional cash to service the asset. Hence it is not true that all property is an asset.

Location Mantra

Is property all about Location Location. Location?

Location is undoubtedly very important when purchasing a property, but there other equally important, but often overlooked, factors. These overlooked factors include good infrastructure, amenities and facilities coupled with thriving businesses in the locality, Local Authority structural plan, and also the community therein. These factors will enhance the demand for your property thereby pushing up the property prices and rental yield will be higher too. This will translate into positive cash flow and you can easily pay off your loan installments

Hence, when someone talks about “location. Location. Location” it is essentially buying a property in a location with the potential for high capital appreciation and high rental yield. This is because the objective of buying the property is to enable you to:-

a) Rent higher than expenses (positive cash flow property)
b) Property going up in value i.e. capital appreciation

Always ask yourself these two questions:

a) Is the property going to go up in value?
b) Is it going to provide a yield that is worthwhile of my capital investment?

If you can answer YES to both of those, then invest!

In some cases you may only enjoy either a high rental with no capital appreciation or a high capital appreciation with low rental yield. Either way you can still invest depending on your financial capability or the cash flow that you have.

Below market price property is a good buy.

Perception of most people is that if you buy a below market price property it will give you instant gain or money.

This concept may be exploited by some property marketer. As investor you need to take note that these below market properties may be because of the following reasons:-

The property is located in an area with very low capital growth
There is an oversupply of such property in the area
The property type is not suitable for that location. For example shops in a secluded and low density area.

Experienced investors will find these below market properties unattractive as it is not able to generate positive cash flow and lacks in potential for capital appreciation.

Therefore, as investor even if you are planning to buy a below market property, the 6E rule of property search still apply. However, there are below market property gems in the market if you know how to source for it.

Buy local properties as overseas investment are very risky

Majority of the people are afraid of investing in overseas property due to the following reasons:-

No proper research or info
Fear of difficulty or hassle in managing the property
Fear of currency risks

However times have changed and technology is so advanced nowadays that you can just Google online to find more about the developer, the location, amenities, transportation links etc. This technology gives you the ability to conduct in-depth research, study the online reviews, trends etc. It is now so easy to travel anywhere in the world if needs be if you feel more assured. You may speak to the local agent or you may also seek your friends or relatives to help out if they are there.

Secondly most overseas properties like us have expert or professionals managing these properties at a fee. Thus you need not be bothered by nifty gritty complaints from the tenant An experienced investor do not want to have control over managing that property so that they have more free time to do with their life, and building a stronger property portfolio.

Currency risk also applies even if you buy local property due to depreciating or appreciating value of the currency. The key here is to understand the trend, the hidden cost, tax laws, laws on selling the property etc in those markets and the objective of purchase. Go back to the basic guide of property investment whether buying locally or overseas. It would also be good to diversity your investment and generate huge returns in the long run.

Leave us your comment below.

Stephy Lim
Rapid Property Connect