You may wonder that with so many properties in Singapore for sale at any one time, how do you buy a good investment property that can generate both good returns and capital appreciation.
Here, these are 4 strategies that I adopt in the search for a good investment property.
By the way, buying an investment property is different from buying a property for own stay. Buying an owner-occupied property requires different consideration such as proximity to schools, place of work and near family members. Whereas buying an investment property is all about generating the highest returns from an investment point of view.
Property is always about location, location and location. A good investment property must be located near transportation nodes, near proximity to place of work, accessible to malls, markets, schools and even leisure places. Each location has its uniqueness. A property in the east could be attractive due to its proximity to the Changi Airport and the East Coast Park. Whereas a property in the West could be attractive due to its proximity to the proposed second CBD in Jurong.
It is always good to make references to the URA Master Plan. The Master Plan highlight what are the future development in Singapore. For example, the Paya Lebar Region is undergoing massive transformation with the development of malls and offices space near the Paya Lebar MRT station. The growth potential is huge with ample state land available around the Paya Lebar Region to support this growth. One should also look at the master plan closely for any change of uses in the vicinity.
Here, beware of buying a property that may be cheap but not accessible for investment. It could be a challenge securing tenants in the future.
If you are unsure on which location to buy, you should always consult a local property agent who has good market knowledge and can give you good advice.
Finding the right project to invest is not only an art but also a science. You must analyse each project in specific to understand its attractiveness and also its weakness.
You should pay attention to the theme of the project and understand what are the unique selling points of the project. You should also look at the project unit mix, facilities, design and functionality. The developer’s track record and reputation also play an important role, as a more established developer will tend to deliver better quality finishes and after sales service.
In deciding a good investment property, you must always consider the entry prices and the potential rental rates of the surrounding properties as a comparison. It will be advisable to sit down with your property agent to evaluate the prices and determine which project is a better investment.
Financial & Risk Assessment
In any investment, it is important to run through a detailed financial analysis to determine your return. You will need to determine the expected rental yield and return on equity (ROE). For seasoned investors, you should also determine the expected Internal Rate of Return (IRR).
Run through these figures with a few comparable properties that you have shortlisted to determine which property offers the highest return. You will be surprised by the results! Here, running through these numbers is not for the faint-hearted as a lot of figures will be required. Consult your real estate agent today to run the numbers for you.
Lastly, as any seasoned investors, you should run through a risk assessment to evaluate your risks. You need to ask yourself what is the worst-case scenario if prices will fall by, for instance, 20%? What if the property remains untenanted for 6 months – will you be able to service the monthly mortgage repayment? What if you lose your job – will you be able to keep the property? These are real questions you will need to ask yourself.