Thursday, April 15, 2010

The benefits of property investment

I was not sure why I like something more liquid asset classes such as equity or mutual fund over other form of investments such as property, fine wine, antique or painting. That doesn’t mean we can’t churn our assets especially with property. The time horizon is not terribly long. 5 years may be okay. The current strong competitions among banks offering exceptionally low rates make it very easy to leverage up.

On a very simplified illustration, putting down RM 100 k, borrow RM 400 k to buy a RM 500 k property and

sell it for RM 750 k at the end of 5 years,

assuming your rental is able to cover your interest charges,

your annual compound return is 28%.

It’s quite an attractive investment proposition indeed.

Success or failure to realize this gain is depending on the ability to smell good LOCATION. LOCATION, LOCATION, LOCATION.

I found an article, the reasons for property investment written by a successful property investor Renesial Leong.

(TheStar) Here are several reasons why Renesial Leong likes property investment over other forms of investments:

>Cash flow on a monthly basis
Make sure your rental income is able to cover mortgage repayment, service charges and other expenses.

>Leverage
A 10% downpayment is equivalent to 100% ownership. Be careful with the gearing though.

>Capital appreciation
Well located properties have good capital appreciation over time, especially landed units.

>Property investment pays for itself over time
If the rental income is sufficient to cover the monthly expenses, the property pays for itself over a period of time.

>Return on investment
Well thought out purchases, when put on the rental market, generally provide a positive return on investment.

>Control
You have control over what and where you want to buy, and the type of properties you are comfortable with. It is also within your control whether you want to rent or put it up for sale.

>Hedge against inflation
One of the reasons why property appreciates in value over time is due to inflation. The price increase in new properties is generally reflected in an increase in existing properties.

>The benefit of use
Whether it is a house, an apartment or a commercial property, there is a demand for it if the property is well located.

1 comment:

Jardin Smith said...

I think investing in property is the wise idea to generate more income.

Jardin Smith International