Different Approaches On Buying Properties For Owner Occupation And Investment

A lot of property seekers feel that home buyers are in essence similar to property investors. Both types of property hunters are looking for the best apartment at the lowest price.

The feeling of getting a landed property below market valuation is comparable to the euphoria of striking a windfall in the national lottery.

But at some point all parties will accept that other than this big similarity, property owners and property investors are 2 very different animals altogether. They have different needs and objectives.

To continue with this article, let’s first define the 2 types of property buyers.

Home Owners/Buyers

These are individuals who are purchasing a property inhabit it.

The idea of renting out the place has never even crossed their mind in any moment in time.

They are purely looking at properties to buy so that their families can live in it and make it a place to call home.

Although traditionally, people tend to stay at their homes for the long term, there is a rising trend that couples are moving homes every few years.

This could be due to upgrading, financial problems, or even going out to live on their own.

The primary objecting of owning properties for this group is to have a place to stay in.

Property Investors

The primary focus of property investors is to make a profit out properties.

There are many types of investors around. These could be managers of REITs, retail investors, property flippers, foreclosure vultures, etc.

And since we are talking about investing at the individual level, we will be referring to individual property investors who are acquiring properties to rent out and potentially resell at a good price.

Here are the key factors whereby home owners and property investors differ assessment

1) The price of the property

This factor is listed first as it is the most significant difference between home buyers and property investors.

Home buyers judge the value of an apartment based on their perceived value and their personal affordability. While an investor will judge it based on market value and it’s ability to turn a profit.

To put it simply, a lot of times, home buyers look at the property asking price and think about whether they have enough money in the bank and whether future income can service the monthly mortgage payments.

An investor will analyse the price per square feet to see whether it is a fair price and  think about cash flows, potential rental returns and future capital gains.

If a penthouse facing the sea with great amenities nearby is available, a home buyer may think that it is worth using every little cent they have in the bank to buy it.

An investor will work out whether the selling price is a fair price and leave the negotiation table without a second thought if the price is not right. It does not even matter to the investor if the pent house faces the sea or a rubbish dump.

2) Financing the home

As home owners have the initial intention to live in the apartment indefinitely, they are usually very receptive to long term mortgages.

This would mean lesser headaches during the tenors of a loan. This is also why fixed rate mortgages are very popular with home owners.

In fact, a huge number of home owners are voluntarily paying high interest rates without a thought on refinancing as doing so is perceived as a hassle that they can do without.

They will close one eye and not make it an issue as long as the monthly repayments are quietly being deducted from their accounts through GIRO.

On the other hand, financing options and strategies are big decisions for an investor.

Every cent counts towards the bottom line. Only by running their operations like a proper business can they squeeze every percentage point into the returns.

This mindset leads investors to always grab the lowest home loan rate around and exploit every opportunity to refinance at a better rate.

Home loan reviews are typically conducted every 2 to 3 years. They may also engage high end mortgage brokers to help them.

Sometimes investors even refinance to a higher rate so as to churn out additional equity from their properties that have appreciated in value.

In extreme cases, they even pay redemption penalty fees just so that they can unlock equity in their properties. They will then use the additional funds to buy more properties.

This is how people build massive property empires. But doing it wrongly is also how people can lose everything on properties.

3) Interior design vs budget decor

Posh designs are in high demand

People are spending more and more and interior design.

Down lights, parkay floors, feature walls, slam proof cabinets, etc, have become buzz words.

Demand for high quality interior design is indeed growing fast. No longer can we live in apartments without air-conditioning, 42 inch LEDs and fancy showers.

Well if you are going to be living in a house for at least 10 to 20 years, why not spend that money to make it a great place to live in?

Quite rightly so. I feel the same way for my home.

For a property investor, budget decor is critical to sustaining a profitable investment.

It is an important skill to balance between a respectably decorated apartment and renovating at a cost that your bottom line will appreciate.

Classy interior design can help yield higher rental. But you owe it to yourself to calculate whether the costs justifies the expected returns. Getting emotionally attached to your investment property can leave you in tears in future

4) Location Location Location

Being a home owner means that you know exactly what you want and what you need.

It could be a need for closeness to subway stations, proximity to shopping malls, near good schools, etc.

So when you are viewing properties you can list down the things that you want and sort out properties that met these criteria by price.

High demand areas are the best areas even though prices could be steep

The mindset changes for an investor.

It can be generalized that an investor would accept any tenant as long as they are legitimate and willing to pay the asking price.

And since tenants are assumed to have a higher budget when they work in upmarket areas, veteran investors often have a preference to properties that are located with the best amenities and proximity to popular facilities.

This is where you will find people willing to pay high prices for properties in the CBD area because they know that the tenant market for that area are of higher quality and bigger spending power.

Expats holding highly skilled jobs will have a fat housing allowance anyway.

5) Calculated timing

While home owners buy properties with little regard to market peaks and bottoms, it is a very different story for investors.

Nobody can truly predict how a market will go.

In Singapore for example, there is a huge supply of new condominiums being built.

Many expert predict that supply actually overwhelmingly exceed demand. Yet prices of new launch condos are still rising like a rocket heading towards the moon. So is economics 101 something that can be depended upon to predict the market?

Thousands of HDBs and condominiums are being built right now

The best case scenario for everyone is to sell at the low and sell at the high.

But for every buyer that wants to sell low, there is a seller wanting to sell high on the opposite side.

So being a savvy investor includes the skill to calculate when is best time to enter the market when sellers perceive they are letting go at a good price even though the purchase price is a steal according to the buyer.

Property markets tend to rise slowly over time. But when it falls, it literally collapse like being on the receiving end of a knockout blow.

The cycle will then repeat itself.

If you have no intention to invest in properties, don’t dive in without guidance. If you intend to be a hardcore property player building your own empire of rental income, go all out to acquire the skills to do so without emotions.

Image Attribution: stevebennettbuilders, Filan, yeowatzup

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