Invest In Good Deals Instead Of Good Markets For Lesser Risks

By on July 6, 2013

Investors who put their money into financial assets like shares and bonds usually think that properties are fundamentally risky investments. And then there is also the issue of liquidity and the small matter of the amount of work involved. While every investment carries a certain degree of risks with it, some combinations of factors can make your property investment less risky then others.

Almost everyone will be able to make a windfall in rising markets. But the select few who are able to withstand setbacks and emerge from declining markets retire rich. The average investor will only purchase less than a handful of properties in a lifetime. So to be able to accumulate your wealth in uncertain markets, you have to make those deals work. Only looking at good deals that are “less risky” is the way to go.

Too many first time second home buyers try to time the market and ride the wave of capital appreciation. Buying in rising markets and selling at it’s peak sounds tasty indeed. However, timing the market is a very risky game because nobody have the vision of predicting ups and downs in free markets. Bear in mind that you can also end up with a losing property in times of economic boom and vice-versa.

To get your hands on “safer” property investments, engaging good deals is what you should strive for. Bargain buys can effectively make you a profit on purchase! To fascinating about real estate is that there will always be flexible home owners who have their own reasons to sell below market value. Unlike stocks where it is almost impossible to buy blue chip shares at a discount to the market price. As soon as you buy a $10 share for $9, that becomes the new market price. There really is no discount there.

less risky penniesBuy the worst apartment at below valuation near hot areas

If you are a home owner, you would want to buy the best home in a good area. Sometimes even the best home in a not as good area. But as an investor, you will want to buy the worst home in a good area. Most people will prefer to live in an attractive neighbourhood with a famous street name rather than on a penthouse in a run down neighbourhood. Does it sound prestigious to tell people you live in Orchard Road even though it could be an apartment that looked like a warehouse?

There is also more upside for a house priced at the low end in a prestigious neighbourhood compared to a high end luxury apartment in a lesser neighbourhood. Minor improvements in a run-down apartment can bring about significant appreciation in a desirable neighbourhood. Whereas, there is little you can do to push up your property value further when it is already the most expensive in the area.

You might wonder why any seller will want to sell below the market valuation of his property. The fact of the matter is the mass majority of home owners are not investors and are not remotely interested in property investments. Individuals have their own reasons to sell and many of which will like it no less than to get the transaction over with as quickly as possible so that they can move on to more important issues in their lives that requires their attention.

So what is the price you should pay? Do a scan of the neigbourhood’s recent transaction prices. Then list down all the prices of listings that are available. Generate a median price to use as a benchmark. After which, get an indicative valuation from 3 valuers. If you have responsive valuers working for you, they can give you a figure in about 5 seconds. This time, work out the average value as a benchmark. Compare these prices with the seller’s asking price. Then ask for a discount if the asking price is higher than the median or average prices you have worked out. A lot of times, requesting for a 5% discount can close a deal immediately.

On the topic of hot areas, you would already know where they are since Singapore is so small. If going for famous street names is not really how you want to do it, then scan through the 28 districts in Singapore. You are going to find that most desirable neighbourhoods reside in district 1, 4, 6, 7, 8, 9, 10, 11.

The logic is this. When a particular area is highly desirable, it will eventually run out of space as developers take turns to build up properties in all available land. The demand for these areas will then spill over to the outskirts and even neighbouring areas. When marking out area zones, take note that a lot of times, the divide between 2 towns is just a road. The width of the road is the distance between 2 towns.

All thing being equal, buying the worst apartment at below valuation near hot areas is a “lesser risk” investment. But remember that this strategy is for those that are less tolerant to risks. Lower risks means lower returns. And you can only open yourself up to a higher chance of high return by taking on more risks.



Related:

You May Also Like...

hair1 eye1 abs1
Access GOV-foreclosure property listings up for auction
Why friends look forward to your FAILURE
Give your resume a professional look for $5
Best EVER excuses for being late to work

Investors and homeowners receive our newsletters. Subscribe to our list.

Get More Real Estate Knowledge & Insights From Our Newsletters

Enter your email below