Over the years, I have met up with buyers who are “stuck”. These buyers are “stuck” because they did not plan forward and purchased the “wrong” piece of real estate. The property might be suitable in the beginning, but it was detrimental to their long-term objectives. These buyers end up in a limbo state where they cannot move forward or even backwards. It is always my passion is to help buyers reach their goals because a property is a long-term investment. You must think 10 or 20 years ahead. So, here are some of the things to take note so that you do not end up in “limbo”.
Mistake 1. Having No Exit Strategy
Last year, I wrote about my experience with a PR couple who was thinking of purchasing a new home. They originally wanted to acquire a smaller unit before upgrading to a bigger one. However, in my calculations, it made a lot more sense to continue renting due to their higher transactional costs. Moreover, the property they were thinking to get may not even appreciate. If the couple were to buy that property, most likely they will get “stuck” years down the road. My advice is to sit down and plan where you want to go. Otherwise, you will never be able to get there.
Mistake 2. YOLO and Overpay.
Let us assume that you are a young couple looking to purchase a property. You have been looking around for a while and decided to go to an open house. During the open house, the place was filled with buyers, and it so happens to be the only one that fits all your requirements. You decide to make an offer only to end up in a bidding war with the other buyers. Although you finally won the bid at way above market valuation, you feel incredibly “shiok” acquiring that property. It is like finishing a race where you came in first and beat everyone.
A couple of years down the road, you realise that you need to move or upgrade to another place. Selling your current home would mean a negative sale. So, you wait for prices to go up only to find out that they do not. Why? Because you have already paid the future price for a property that did not have the potential for growth.
Mistake 3. Insufficient Holding Power
I am sure you have heard about ads telling you how to purchase multiple properties with little or no money down. To buy something as expensive as real estate, the funds must come from somewhere. Most of the time, these funds come in the form of a bank loan or debt from the bank. For an investment property, the tenant also contributes to the payment as well. For a cash flow positive investment, you will be collecting “passive income” every single month.
However, let us assume that you have ten commercial/industrial properties that you are renting out right now. Before Covid-19, you have a positive cash flow of maybe $500 per property. Netting you $5,000 per month which is a decent “passive income”. During this crisis, some of your tenants are severely affected and have trouble paying rent. With the mortgage payment and expenses of around $2000 per month per property, your outgoings are $20,000 per month.
In the instance that all your tenants stop paying you rents in the next six months, you will need to come up with $120,000 to service the loan. If you have the money lying around after making the down payments for ten properties, feel free to go ahead and make the investment. If you do not have this holding power, please do not venture into real estate. I do recommend that you set aside savings of at least six months of mortgage payments. Or even more, depending on your risk appetite.
Mistake 4. Do Not Understand the Mechanics of Price Appreciation/Depreciation.
There are two schools of thought. One group of buyers will always think that whatever they buy will appreciate over time. Then there is another group that will think prices will fall and only buy when they are low. The problem is that both groups do not understand the mechanism of how prices work in real estate. When you do not understand the mechanics, you will either end up with a property that cannot appreciate. Or miss out on capital upsides when you should have acted. I have written plenty of articles with regards to this, so feel free to read them on my blog.
Mistake 5. Shopping Around with No Clear Objectives
Some people treat show flat viewings as a hobby. They can spend weekends looking at the various developments to understand more on the project. There is nothing wrong with this. The problem arises when you do not know what you need at the end of the day and hop from one viewing to another. Because you are not clear on what you want, you do not have a priority on your scheduled viewings. Some places might not meet your requirements, but you still go and view them anyway. Doing this will make you lose focus and miss out on what is important.
By keeping an eye on what meets your objective at the end of the day will help you tune out all the market noise. You are then laser-focused on what is essential and not miss out on any opportunities that come your way. Because by the time you finish shopping, the property that matches your objectives had already increased in price. What can you do then? Continue shopping or bite the price increment bullet?
Get A Partner to Help You Avoid Paying for These Mistakes.
There are a few ways you can acquire a property in Singapore. You can purchase them via the seller directly, go through the seller’s agent or a buyer’s agent. It is also a well-known fact that buyers who do not engage a buyer’s agent will end up paying more for the property. Besides, during their YOLO moment, end up with a property that they are “stuck” with for life.
With real estate being such a significant investment in our lives, isn’t it essential to engage a correct partner to help you? To understand how we help our clients reach their objectives, do fill the form, and we will get back to you shortly.
Article contributed by Jerry Wong.
Jerry Wong is a realtor with Propnex Realty. He loves coffee, cookies and condos and has been in real estate for ten years. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home. Or making well-informed decisions that see their assets grow. Book a video call appointment and Jerry will share with you the following.
- How certain factors affect real estate prices. Why some condos can make a million dollars while others can lose that same million.
- Why timing is not the most important thing. Because some people can buy the same condo at the same time, but one end up making $100k to $200k while the other suffers losses of the same amount!
- Understanding your requirements and craft a solution for your real estate needs. Be it in the form of asset progression, tax planning, etc.
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