Archive for August, 2008

Logic Over Emotion, a Must in Real Estate Investment

two men Two people who invested in two different real estate properties at the same time, who started with the same amount of capital, can have a significant difference in realized profit and income. One can come up with a winning property that will have a strong potential for capital growth and income.  Meanwhile, the other investor can end up with a property that is not only draining his finances, but suffering from negative equity as well. Both started in real estate investment in good spirits, but one ended up in a losing streak.

Actually, real estate investment is not really about being lucky, unlucky, good vibes or bad vibes.  It is a business of logic.  Sadly, just like most buying attitudes, many buyers are easily persuaded by their emotional convictions.

Some people are easily convinced to invest on a property based on its price, presentation and ambience.  These are what make the product standout in the marketplace from a marketing perspective.  However, these are not the main things to consider from a financial or investment standpoint.

The price can be a deciding factor in terms of budget range.  However, it should be analyzed together with location, rental income, existing infrastructures within the area, future developments, job availability, demographics and security.

The price by itself cannot be the main consideration.  In fact, many people lost more money in considering price alone.  Anything that has a cheap tag price does not mean it is a bargain.  It can be cheap because of the existing high crime rate or the trend of foreclosures within the area.  It could also be due to structural problems with the building.

Failing to distinguish a real bargain can make or break the deal.  If the property comes with negative issues that are beyond your control or would be too expensive to fix, then it is not a real bargain.  Come selling time, you might lose more money or sell cheap too, defying the purpose of buying the property as an investment.

Thus, next time you buy a property, analyze it well.  Although presentation helps, look beyond the physical attributes of the property.  Analyze all the other factors and do your own research about the area.  But most of all, do the necessary computations and study the existing statistics within the area.  Is your capital investment worth the risk? Does it have a good rental return?  What is the projected price growth in the area?  What was the historical price growth within the area? What are the recent sold prices?

In the end, property investment will always have risks involved just like any investment.  However, you can minimize the risk by being more logical about your real estate purchase.  You will have more assurance that you made the right choice.

How about you, did you have a good investment property?  Do you have any tips to share?

Photo Source:

Flickr.com by Stanrandom

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The Lure of Credit Cards, Hate It or Love It?

shopping Credit cards, plastic money, advance cash, whatever you call it; many people are attracted to its many benefits.  It gives the cardholder the ability to make instant purchases, even if they don’t have any money to spend.

In principle, credit cards are this century’s most powerful tool.  It allows people to purchase a lot of things from food, clothing, cars and travel.  You can also use it to pay the rent and in some cases, the deposit for your real estate purchase.

The love-hate relationship with your credit card starts when you can no longer afford to pay your purchases, especially if the accrued interest has blown out of proportion.  I’ve seen many people who earn big bucks faced with a mountain of debts due to their credit card purchases.  They started with purchases they can initially afford.  However, after maximizing their credit card limits, they realize that they spent way too much than they can actually afford.  It will take several months’ salary and sometimes several years’ income to pay for it.

However, the problem doesn’t stop there.  It is like an addiction that is hard to control.  Even if people realize that they are faced with a lot of debts, they are still lured to apply for more credit cards.  It can come to a point that it is almost impossible to pay for the total accumulated debt.

Overall, most debt counselors would recommend getting rid of credit cards.  However, in my opinion it is good to have one for as long as you know how to control it and it doesn’t control you.  For instance, don’t make any purchases that you can’t pay off without incurring any interest.  Take advantage of using it for big ticket purchases where you can convert the accumulated points for free travel or even gift cards.

In the end, if you can manage to handle your credit card debt, then you’re one step closer to owning your own home.  You won’t only show your potential lenders that you have  a good credit history, but you have the discipline in managing your debts, income and expenditures.

What’s your credit card experience? Do you love owning one or do you hate the debts that came with using it?

Foto Source:  Flicker.com by ralphbijker

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Individual Buyer vs. Investor in Real Estate

Ian Britton In Matt Woolsey’s article “Top Global Real Estate Hotspots“,  I would like to emphasize some of his views about real estate investment.

Firstly he mentioned that:

“While an individual buying a home is interested in price, appreciation and perceived value based on the location or the surrounding neighborhood, investors look more at capitalisation rate, the interplay between how much property costs and how much it can be rented for.”

This statement will differentiate a professional investor from an ordinary property buyer.  As a former Realtor, I’ve met a lot of different real estate buyers from those who have really big budgets to those who are just starting to buy their first homes.

Most first-home buyers are more particular about the aesthetic look of the homes they are buying, some take notice of the environment, but many are just happy to find something that will fit their budget.

Meanwhile, there are those who did their research before buying.  These are the people that fit perfectly in Matt’s description of an individual buyer.  They are looking for good buys in a good neighborhood, with a potential for capital appreciation.  Although, this type of buyer can do well with the property he bought, the real movers and shakers of real estate investment are the professional investors.

I refer to them as “professional investors” not only because they know what a good investment is, but they know how to gauge which can be a top performing asset in terms of return.

Here in Australia, investors can refer to the many moms and dads who were convinced that “negative gearing” is a surefire way to get most out of one’s property investment.  I wish it was.  There were some who did well, but there were some who really did worse.  In my personal opinion, the only sure winners in negative gearing are the tenants.  More investments properties mean more choices and an increase in supply means more competitive rental rates.

However, with Sydney and other states in Australia experiencing rental rates at an all-time high, this can also indicate that many mom and dad investors realized that negative gearing is not for them.  The combination of inflated prices, high interest rates, tax rate cuts made property investment a less popular choice.  Many are experiencing negative equity, higher repayments they can no longer afford and the tax savings is simply not worth it.

In the end, a loss is still a loss, regardless of any tax savings.  Hoping that the property will appreciate high enough to recover all those losses can be “tough love” for some.  As I’ve said before the only real winners are the tenants.

I was a tenant before.  My husband and I enjoyed living in a brand new half a million dollar unit, by paying only (I assume) around 1/3 of what the owner is paying for the mortgage.  This does not include the strata fees, council rates, insurance and other fees for the account of the owner. The hard part is right now, that unit can only be sold for substantially less than the price they paid four years ago.  Sure they were able to claim a lot of losses but in reality, in the investor’s book of performing assets…this is definitely a LOSS.

With several properties on the market in various locations, a budding investor can get lost in the sea of investment properties available.  Every property owner, developer and real estate salesperson  can claim that they are selling an investment property. Thus, every good investor should have the eye for detail and the logic to calculate, if the risk and returns involved can truly make it a good investment property.

Photo Source:  FreeFoto.com by Ian Britton

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