Owning a property may be everyone life aim. Many people have the perception of having financial freedom via property investment. Currently, with the slow economic growth, investor are seeking a way to secure their funds to overcome inflation and making long term gains. With the slow market, now may be a good time as property prices are at the lower end, or at least developers are giving out a variety of rebates and perks for home –buyer.
Below is a list of 9 factors to consider when investing in properties.
- Cash generating do not correlate with profit
Assuming the property is generating stable rental yield, it does not showed that you are getting profit from that particular income. One must keep into consideration the total cost of the property which would include tax, legal fee, stamp duty, agent fee, renovation, management fee and even furniture.
For example, by getting 48,000 annual rental yield, with the total cost of 2 million. At a minimal interest rate of 4.5 % over the period of 35 years. One would need to bare an average of 8,518 every month for mortgage. And in the current market, property rental may fluctuate and prediction may not always be accurate.
2 – DO consider future plan before investing in property
Investment property and own stay have its own distinct approach. Decision during purchase is greatly affected by market needs instead of personal needs. For example, hundred palms residences for sale, which is located in a mature neighborhood and with an affordable living rate. There will be the availability of fifteen months free shuttle bus service for the residents initially so that they won’t have any problem to get familiar with the locality. You could rent it out to small expat family over the 5 years.
However, on the 6th year, you would like to purchase a house for your own stay and to start a family. You may consider to sell the condo with initial recouped cost via rental return and capital appreciation. Or you may face a market downturn, forcing you to sell if you have limited holding power for 2 properties.
3- Maintenance cost may be overlook
Renovation is essential to attract potential tenant. This cost would be the initially sum invested into your investment property. You would also be required to allocate certain amount for maintenance such as piping, walls and doors.
4- Unguaranteed rental yield
For the span of 35 years, there would certainly be a period whereby the property may be vacant and generating nil income. You may even need to fork out a certain amount for management fee and miscellaneous upkeep cost. In the meantime, you are also competing with other property owner within the vicinity. A financial buffer is critical when facing such situation.
5- Amenities surrounding the property
Population, facilities, infrastructure, and connectivity are the main consideration of potential tenant. Thus, you need to have a critical research on what is presently there and what will be the future development around the vicinity. Currently the hot spot are neighborhood with schools (high-performing), public transport stations, gyms and malls.
6- Developers portfolio
When you are purchasing a property, it is crucial to check the reviews, ratings, and news of the developers. After sale service is important as you will not wish to catch a defect after your tenant moved in and the developer are not responsive in fixing the flaw.
7- Vacant land
Buyers should be well aware of all vacant land in the vicinity of the property, and do thorough research if future construction will affect road access or view from the property. It is recommended to stay away from the property if plans are unavailable for the vacant land
8- Tax impose
Do keep in mind that there are several tax to be assigned if you are renting out your property. These taxes may varied and one must be frequently update on the latest tax policy
9- Evaluate the property carefully
You must evaluate the property before any purchase is made. Layout must be suited to the target rental market demands.