Property as a tools as investment has become the norm for investors. Like many other investment tools, There are several factors to consider when you are selecting best property to invest. The most common things we always heard is "location, location, and location". To certain extent, this is one of the factor to consider before you decide whether to go with the investment.
List of factors to consider picking best property to invest
- Purchase Price
- Capital Appreciation
- Rental Yield
What to look out? You should question about where is the property is located, what kind of building on the surrounding? Industrial, commercial or residential building
Distance to the city center, offices, workplace. Amenities nearby such as food court, sundry store, shopping malls, banks, and recreation facilities. Connectivity and transportation facilities city bus, train, expressway for those who prefer to use their own private vehicle.
Depending on what type of properties you are investing, be it commercial, industrial, or residential building those are few aspect you should consider in property investment.
Developer and development
Track record of developer derive the quality of the development and the finishing. In addition, you can also have more understanding on whether the development will be completed in time and also their financing ability based on their track record.
Price should be comparably similar to the surrounding development. Other aspects which may influence price are the tenure of the property whether is freehold or leasehold, distance to the public transport, facilities of the property, and developer.
If you are investing using loan, make sure you can secure your loan. In some countries like UK and Australia, the banks will process your loan if your property is near completion. In this case, usually the bank will give the guidelines how much income you must earn to be eligible to certain amount of loan.
For the price to appreciate, the basic fundamental is sustainable demand and shortage of supply. If population grows at fast pace more than the supply of the houses, Price will definitely increase. Other aspect that you can look at is the price history or price trend in the location. And major future development like new business/commercial district or new train line or station which will increase the value of the location.
If the location, development, and financing are secured. In my opinion, the deal breaker would be Rental demand and yield. The formula I am using is rental yield must be greater than the interest rate that I am paying for the loan. Why this is the key decision? Investing, whether you invest in property, stock, bond, derivatives, commodity, or any other type of investment tools. It is about managing your risk. As long as you take care of the downside, the upside will take care of themselves.
Why rental yield is the decision maker?
- As long as your rental can cover you installment, you just need to pay the down payment
- The rental paid for the installment is broken into interest (bank earns) and principal (property owner earns)
- In the event of financial turmoil, you lose your job or your income shrink. As long as the rental can paid off the installment, you do not need to force sale your property or margin call (in stock market term)
Property investment offers a good expected return and lower risk involves. The key in selecting best property to invest depends on how well you can manage your risk.