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7 Wrong Ways To Decide On Investing In Properties
It almost seems like a given that anyone with cash to spare should put their money into properties now in Singapore where property values are powering up like a tank eating up the terrain. The good thing is that if you have done your homework and spent some time deciphering market data, it could be the right move. On the other hand, there is also data available showing that it might be a bad move. As long as you do your research, it remains your judgement call to see whether you should indeed write that million dollar cheque and hand it over to your gleeful real estate agent.
The problems arise when you make investment decisions based on mistakes that have been documented over decades of live examples. It appears that we never learn just like always forgetting not to wear white when eating laksa. Here is a reminder of the most common mistakes people are prone to when making property investment decisions.
1) Taking advice from your sister-in-law about property investment
You are playing with your own money. Even if you are using the bank’s money, you are ultimately liable for it. The only people you should take advice from are real people who are property investors, and has a day job that is unrelated to buying or selling properties. Just because a family member has experience buying a second property does not make her an expert. But she can definitely give you a neutral opinion.
And NO. Do not wholeheartedly take advice from “experts” and “gurus” who sell property seminars and video courses. Also be wary of “gurus” who have a side business running a real estate agency. As long as anyone runs a property agency or a business licensed to sell properties, you should take their advice with a pinch of salt. Ultimately they will tell you where to buy with an intention of making a commission out of you.
Your best bet is to digest market data and make your own conclusions.
2) Listen to the mass media on when to buy and sell
Properties are very localized investments. Reports in newspapers are usually swayed towards an overall picture. So when you see headlines broadcasting price drops and jumps, it usually applies to the big picture instead of your particular property. Also be very careful when reading articles in magazines. Sometimes bias advertisements are disguised to look like author columns. If you do find these, shortlist them and make a mental note to ignore them.
Mass media also seldom give recommendations. They get experts to give opinions and recommendations. A lot of these “experts” are property players who will benefit from a property market that is hotting up. Learn how to differentiate between neutral opinion and one that is biased.
3) Buying because everyone else is buying and start praying at the temple
When things are going well, everyone expects it to stay this way. And when things go south, everyone expects things to stay that way as well. Fear of missing out is a big emotional factor that drives people to take action. When you think that everyone is rushing to buy or sell, ask yourself these questions.
- Have you actually seen for yourself that the market is buying or selling in a craze?
- Did you start assuming these things from reading articles or magazines?
- Have you went through official market data to verify what is happening?
- Are you being advised by people who would make money from your property transaction?
4) Taking your own sweet time to analyze an investment opportunity
Yes you only work office hours from Mondays to Fridays. But getting involved in property investment needs your personal time and personal attention. A competitor can come and take the deal away by the time you call the seller the next day. Thinking that you have more time than you actually have is really something that can dampen your spirits when you miss out. Set up your investment criteria clearly before running into the market. Not that you should decide immediately after viewing a property, but be prepared to start doing your analysis and due diligence as soon as you finish viewing a property. This will help you make an informed decision as fast as you can.
5) Assume that you can get the loan that you want as if you are entitled to it
Nobody owes you a loan. Everyone talks about getting 80% loan to value like nobody’s business. But remember that that just refers to eligibility, not entitlement. You will have to go through a mortgage application like everyone else and subject to credit assessment before you actually get a loan approved. The most stressful situation to get yourself into is to pay your deposit to buy a property and finding out later that banks are queuing up like an iPhone launch to decline you mortgage loan request. The best approach is to get a loan approval before committing to buy a property.
6) Assuming you can use rental to pay the mortgage and profit from capital gains
Unless an apartment is already tenanted with a long term occupant, you cannot assume that it will be fast and easy to get tenants. You also cannot assume that you will be able to rent out your property at market rates. If your personal finances cannot withstand a few months of vacancies, you are probably over stretching yourself. Putting yourself and your investment in such a position is self sabotage. It is best to have enough cash on hand equivalent to 12-24 months of mortgage payments as a buffer. Until you reach a level of investing where people address you as “property god”, never stretch yourself too thin. Doing so and you might end up eating prata for every meal for a long time.
7) Not physically inspecting the property thinking nobody will screw you
You might think that nobody will make false claims in an orderly place like Singapore. The pictures that the seller has posted online look gorgeous indeed. Well as long as you signed on the dotted line, you have committed yourself. It does not matter if you only find out later that the apartment is infested with bed bugs and termites. A shrewd seller can insist for completion or forfeit your money. Other things to look out for on physical inspection include cracked walls, peeling paint, leaking ceiling, etc. If you are buying a building, make sure to inspect every room.
This mistake is the most prevalent when inexperienced investors buys overseas properties. Do not buy based on a sales seminar or recommendation from a “guru”. You are buying a physical asset, not an intangible one. If someone is trying to sell you overseas property, get them to pay for your travels to take a real look at it. If you travel frequently, go take a look at the property yourself. Property promoters expecting you to fork out tens of thousands of dollars just by showing you pictures and videos with a strong sales pitch is having it easy. If they ask how can they pay for your travels when you have not made a commitment to buy, reply with how you can write them a cheque when you have not seen and inspected a property you are presumably buying.
Getting ready for property investing
Other than devouring all the information you can about real estate investments, another key training area is learning how a purchase process works. You can of course also learn about it by reading up. The best way to go about this is to tag along with friends or other investors who are in the process of buying property. It is only through a hands-on approach where you will learn the nitty-gritty of buying properties.