By guest contributor Gerald Tay
You have probably heard this popular phase when learning about property investment: “Location! Location! Location! You can’t go wrong if you buy in a good location.” The lesson for investors is that “location” should be the top consideration in your investment decision. In other words, as long as you follow this sacred mantra of property investment and buy a property in a good location, it will definitely be a good investment and you are sure to make money in the long term, regardless of all risks.
Is this mantra right? No! And Beware! You still face the possibility of making a bad investment even if you pick a property in a good location. Surprised? This mantra has been mainly repeated by three categories of people. They are Salespeople, Property Speculators, and Novice Investors who try to “act smart”.
Professional investors like me know that we may end up with a “crap” property even in a good location. Therefore, we know buying a property in a good location does not guarantee a successful investment and will never make major buying decisions based on location alone. There are many other key considerations to factor in.
Examples of properties in good locations that have lost money for their investors
Bishan 8 is a 99-year leasehold condo launched in 1997. When it was launched, there was a lot of hype and excitement especially from the media. The property is located just directly opposite the Bishan MRT station, the Junction 8 shopping mall, and is close to town. It was one of the few properties that were located near an MRT station during the earlier days of our public transport system. But based on past caveat transactions, many who bought the property during the launch period have lost money, and even for those who are still holding on today, there is not much capital gains.
Some may argue that leasehold properties such as Bishan 8 do not hold their value as well as freehold properties. However, there are also many freehold properties in good locations that have been money losing investments. St Regis Residences, for example, a freehold apartment located in one of the most prime districts in Singapore is one of the “overhyped” properties launched back in 2006. Some of these rich investors, who sold even at the peak of 2012, still lost millions speculating in its “potential capital gains” because of its location. There are many other examples both locally and overseas.
Location is important, but…
I am not saying that you should leave out location from your buying decision. I am saying that you should first consider the other more important factors before zooming in on where a property is located.
So, what are some of the more important factors to look at first?
Professional Investors look at “numbers” first. The “numbers” tell the whole story of the property investment, even its location.
In other words, the sacred mantra in property investment should be: “Numbers, Numbers, and Numbers!”
What do those “numbers” tell you about the investment? You will be surprised how much crucial information reading and understanding the numbers will reveal to you, including timing, location, value, risk factors, margin of safety, “truth” and “lies” etc.
There are two numbers you should understand and be familiar with if you want to be a successful property investor. In fact, these two numbers are the basic investment language of any credible investor, whether in a business or investment deal.
We’ll discuss what those two numbers are in the next part of this article.
By guest contributor Gerald Tay, CEO and Chief Trainer at CREi Academy Group.