It’s no secret that property investment in Singapore almost enjoys the elevated status of a much loved national sport and the topic also sparks the same feverish passion.
Besides being a much coveted possession, owning a property gives you feeling of achievement and security that no other asset class can quite give you.
Saying that I own an apartment at District so and so somehow sounds more prestigious and rolls off the tongue more elegantly than saying that I own 50 lots of Capitaland shares.
Besides, the above stated emo and vanity reasons, here are the very practical reasons how property investment works hard to build your wealth.
1. You Don’t Have to Wait till Your Property Doubles in Value Before You See Good Money
Many people think that profiting from buying properties is a very linear thing: you buy at $1m and if you want to make $750,000, the property needs to appreciate to $1,750,000.
But that’s not true. If you buy a property at $1m today, you only need it to grow at 3% per year (about 30%) in 10 years, to give you $750,000 at the end of 10 years.
Here are the sums.
Price of property | $1,000,000 | ||||||
If sell in10 years at 30% profit after 10 years | $1,300,000 | ||||||
less 25% downpayment | $250,000 | ||||||
less outstanding loan after 10 years | $525,000 | ||||||
525,000 | |||||||
Just by the simple act of owning a property for 10 years, the potential likely profit is | |||||||
$525,000 | |||||||
Outlay | 250,000 |
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Profit | 525,000 | ||||||
ROI | 210% | ||||||
Total Cash In Hand : $775,000 | 775,000 |
2. It is very easy to find people who will fund you in this venture (Hint: Its not our well- meaning Mum & Dad)
One of the things I find most amazing about property investments is this:
This is the only investment in which you can easily find a business partner to co-fund your venture. And the co funding is quite unequal because this partner comes up with 75% of the funds needed to purchase this business. While you only pay 25%
What’s even better is that you don’t have to split profits with your business partner at all. If you sell at $1million profit, its all yours.
Of cos you have to pay the partner the interest for using the funds. But that is all. Now if you need to rent equipment to do your business, you’ll need to pay the leasing fee to use the equipment too.
This partner which I am talking about is the bank. The bank will knock our doors down and offer us a mortgage loan so that we can buy that property which will later become an asset which will give us close to 300% of our downpayment. See above calculations
3) It is almost passive
Besides having to find tenants every couple of years, it is almost passive in nature.
Unlike a real active business, you don’t have to be at the shop 7 days a week or think of strategies to deal with stiff competition.
You need a good property agent who can find you tenants of a decent profile who will bank money into your account month after month.
4) You still make Money if the Price of the Property doesn't Go up
You will still make money even if your property doesn’t appreciate in price after 10 years
Even if your property does nothing after 10 years. It doesn’t increase in price at all.
You will still be able to take back $225,000 + $250,000(downpayment)= $475,000
Still almost 100% return on investment at about 10% return per year. How good is that?
Not too shabby right?!
So there you have it, I hope you see the beauty of this simple financial instrument called property investment. Not rocket science. Just need to understand how it really works and make it work for you.
To read how you can invest in properties to give you income during retirement, click here
