There is a compelling reason why the thought of investing in any property still excites people: it is a guaranteed money maker. Aside from offering people the basic necessity of a shelter, it was with the real estate boom that homes turned into perpetual commodities.
Other kinds of investments, especially the likes of stocks and shares, provide greater risks. For example, a $500,000 investment in the stock market requires constant monitoring as the value of your shares can significantly decrease in just one trading session. Yes, you can always declare use a ‘margin account’, wherein you put in a smaller sum and play with the others’ shares. However, the minute the share price drops, the margin will inevitably get eroded, prompting your broker to freeze your account.
THE LEVERAGE OF “LEASING OUT”
Investing in property, on the other hand, poses a great advantage over the other riskier types of investments. Using the same example, the $500,000, you barely need the full amount as initial investment. You might only need 20% of the total price ($100,000) and obtain the remaining amount as a bank loan, which the banking institutions usually permit. Your leverage in this situation is your power to use other people’s money in paying the monthly amortizations, in a concept otherwise known as rent.
Leasing out a property is one of the reasons why it is exciting to invest in one. Despite the fact that a project could be almost sold out or built some years ago, people are still hot about it. When you buy one, you can “leverage” anytime since a property’s value will never depreciate. Moreover, you can secure your possession easily by paying through installment, the period or range of which depends on the developer. It is a proven entry-and-exit strategy that maximizes your ROI.
In Singapore, you may opt to buy a property after a few days and still get more than 100% return on your outlay on a procedure that spans 20-25 years.
Take a property in Hillview in this case. Hypothetically, if it is an 800-square-foot, two-bedroom condominium that costs $800,000, you can lease it out at $640,000. Additionally, the developer’s previous advertising efforts will come in handy. They could have hyped up the property as having a “Victorian” or “French” inspiration, giving interested future occupants the impression that they will indeed be living on a property with the same calibre.
How much can you rent out per month? Suffice it to say that if the property has premium amenities and easy access to the financial centres, your intended value of $810,000 is a price reasonable enough to break down to a conservative 2% monthly installment (around $2,400-2,700). Upon the lessee’s completion of the payment after 25 years, the entire $640,000 loan will have been fully paid by then.
By only putting out a $160,000 outlay, you would have a $1,600,000 rental yield later on, bringing you a 1,000% return of investment.
Capital appreciation is a by-product of the rental yield, even higher if your property is the ideal one. Naturally, market sentiments change constantly, but it is the risk-taking and trust in this particular mode of investment that makes it worthwhile.