By Gerald Tay (guest contributor)
I’m probably not being modest in this post. Pardon me if I sound overly boastful on the success I had with my real estate investments over the last 14 years. It is to help you understand the key differences between being a mediocre and a truly successful investor.
All of my real estate investments over the years have made more than a 20% a year compounded return per property. Some even higher. The returns comes from sales and net rental income of the properties.
Since late 2012 I’ve sent many warnings to buyers – be extremely cautious or avoid buying local and overseas investment properties. My predictions were proven right for the local property market. Today, property prices and rents are slowly falling and the worse is yet to come. I believe if a buyer were to have bought into the peak of 2013, they would very likely not see reasonable returns for many decades.
Guts and conviction to be different from the crowd
In 2010, my US partners and I started looking into US Real Estate (RE) for great buying opportunities. We were eagerly seeking co-investors to snap up under-valued US RE– direct from seller and resale only.
One especially undervalued property segment is US Commercial RE. The market is hugely untapped and shunned by many ordinary US investors. The complexities involved with buying into such large-scale properties are very different from buying a residential property. Price is another factor as many could not afford the hefty price tag that comes with Commercial RE. Priceseasily ranged from US$2 million and upwards. Comparatively, the price of a quality US Single-Family Home costs $150,000 on average.
Furthermore, banks do not easily grant loans to buyers with zero experience in Commercial RE. Sellers will also reject an inexperienced buyer’s LOI (Letter of Intent) as they are afraid the deal will not go through because of the complexities involved in handling such properties, and market negativity from a failed deal will affect their selling price afterwards.
Therefore, many inexperienced buyers dived into the “safe” US residential market instead, driving up home prices. The US Commercial RE market remains today an excellent investment prospect for savvy and knowledgeable investors. These properties are tenanted by large US Companies (Citibank, Burger King, Dollar Tree, Home Depot, etc) listed on US stock exchanges. They are largely undervalued in price and rental income.
In 2011, I urged investors to look into this overseas market segment as I was confident we would get good and stable returns over the next five years and beyond.
Many property buyers don’t know better
First example: Everyone I knew investing into the US real estate market was either jumping into expensive cities like New York or were buying into bankrupt cities like Detroit. They thought buying a property priced at only $30,000 was a steal. Overseas buyers of cheap properties often ended up with losses.
Second example: At one point the US dollar went as low as S$1.20. It was the best time to snap up quality US RE at a low price with the low exchange. Instead, investors were worried about the weakening of the US Dollar to the Singapore Dollar. Some were saying the US Dollar might even weaken further from US$1 to S$1.
In 2012, if you simply exchanged Singapore dollars for US dollars, you would have profited with a 5% per year compounded return just on currency appreciation.
Third example: The Net Rental Yield (Cap Rate) in 2012 for US Commercial RE went as high as 8% per year for properties with stable, high quality tenants. This simply means the purchase price was exceptionally low with a high rental income. A buyer would get a stable long-term tenancy with fixed leases, some as long as 20 years, and a yearly rental increment as stated in a contract.
However, amateurish investors tell me such returns were too low for them. They were promised guaranteed total returns as high as 20% for some overseas properties.
Our USA commercial properties are doing extremely well considering recent market upheavals. My co-investors and I have seen good price, rental and currency appreciation since we purchased in 2013. Valuation for one of our properties surged from US$2.2 million in 2013 to US$2.6million in 2015. All of our US commercial properties are fully occupied with a 3% yearly rental increment and new 5 to 10 year fixed leases.
Missing the woods for the trees
Successful investors are no different from successful entrepreneurs. Successful people reject popular thinking. They avoid going with the herd. To reject popular thinking you must be OK with feeling uncomfortable. To be successful, you need to see the woods and ignore the trees.
I’ve been successful with my investments because I:
- Bought local Singapore properties during the down period of 2003 to 2006 when others were avoiding this
- Saw old resale properties as great investments while others rushed for new property launches
- Loved adding value to my properties to enhance them
- Invested in depressed USA assets
- Bought when prices were low and avoided buying when it was going up
- Sought reliable foreign partners for my overseas investments
Every once in a while, a great opportunity comes along and changes everything. And you’re going to be very fortunate just to work on that one opportunity that may change your life.
I don’t believe in luck. Luck is leaving things to chance and the outside world. I believe in taking action and creating my own path in life. Your life is yours to create.
By guest contributor Gerald Tay, who is the founder and coach at CREI Academy Group Pte Ltd, an organization dedicated to empowering retail property investors with smarter investing philosophy and strategies. He is a full-time investor with over 13 years of solid experience in building his wealth through Property Investment and is financially wealthy today.